Sub-leasing commercial unit. What are the pros and cons?

K

Kerrigan

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Hi guys,

As I mentioned on a previous thread my partner and I are in the process of leasing a commercial unit. The lease has been a long winded process and subsequently we have both started to get cold feet.

We have found the landlord pretty standoff in attitude; alarm bells have started ringing in our ears.

Firstly, we are proposing to lease from the current tenants that are in situ as they are tied into a lease assignment. The landlord has insisted we deal directly with the present tenants and not "disturb" her.

The current tenants have paid council rates right up to year end and are seeking to be reimbursed from ourselves from the date we move in to year end.

They are also looking to be reimbursed property insurance from the date we move in.

Would like to hear thoughts please.
 
Kerrigan said:
The current tenants have paid council rates right up to year end and are seeking to be reimbursed from ourselves from the date we move in to year end.

They are also looking to be reimbursed property insurance from the date we move in.
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This is normal in both cases. If in the midst of a year, you are obliged to reimburse these on the date of your signing, but as per your other post, you're not sure what to do or where to go.
 
Not clear why you are sub-leasing from tenants .The fact they are tied into a lease agreement is no reason not to assign the lease to you. The LL cannot reasonably refuse.
But if it is the case you are sub-renting then so be it. It's not uncommon.
(As long as you have worked out who do you deal with in case of emergencies- leaks, sewerage blockage etc.)

Why do you query or mention the fact that you are asked to pay for rates and insurance?
Are rates and insurance included or not included in the rent agreed ?

Sorry to appear rude -but are you looking for reasons, other than normal comemercial considerations , to back out ?
 
No, not always. I let a commercial property - a shop- and the rates and insurance are included in the rent I charge. The rent increases if rates or insurance increase from the abse level set at start of rental period.
I have also rented shops from LLs were everything was included.
Some Lls ,like me, find this a much tidier system for both parties -LLs and tenants.
 
Is that not adding an extra layer of risk should the tenants stop paying rent and start overholding? At least of the tenant is down for the rates, you have some chance of getting them wiped (at least in SDCC it's possible, they are somewhat reasonable) if the overhold for x months then do a bunk. If it's all in your name, you would be unlikely to be able to claim a rates rebate I'd have thought....just thinking out loud (we had an over holding commercial tenant leave with a lot owing to the Council, but they wiped them when shown the court proceedings etc.)
 
Rates bill is in tenants name. It's just that i tell tenant that i will pay it on his behalf and include it, as well as insurance, in the monthly rent. Actually it's laziness on my part - I don't have to chck rates are being paid, nor bill seperately for insurance.
If tenant doesn't pay rent then I won't forward payment to rates dept -and if that happens doubtless I'll go thru the same procedure as you did.
 
oldnick said:
If tenant doesn't pay rent then I won't forward payment to rates dept -and if that happens doubtless I'll go thru the same procedure as you did.
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Ultimately, if a tenant does not pay the rates on a commercial unit, the onus and liability is passed back to the property owner for discharge.
 
Exactly. (though,as Murpshaph says, councils do,dpending on circumstances, reduce or waive owed rates)

The best way to ensure rates are paid is to include them in the rent . Tenant pays rent to LL by DD, LL pays rates by DD - all smoothly done on a monthly basis.

This is much better than LL having to check whether tenant has paid rates. I'd never trust a tenant to pay rates on time. Too many LLs have been caught out by tenants not paying rates. (Indeed, many LLs don't even realise they are ultimately liable).

Rates, insurance and everything that are costs and are ultimately borne (or legally obliged to be paid ) by the LL should, IMO, be included in the rent.
 
But and a Big BUT is that you are talking about things which are variable, where the rates increase as does the cost of Insurance. On a long term lease it is very hard to allow for these variances on an annual basis where the reviews are normally every five years.
 
As I said in post 5 , the agreement stipulates that the rent increases if rates and insurance increase. The basic rent stays the same -only thre taxes/charges/insurance part incraeses. Also has provision for any other govnt or external taxes/charges etc. In realtity the annual increases are tiny so I don't add on every year,only occassionally.


(not ,mind you, that any rental agrement means much nowadays for smaller commercial premises, whether shops,offices,warehouses. There are so many commercial tenants going broke and so many empty premises that everything's a bit of a mess. It's almost a case of any LL getting what they can. Lucky the LL in secondary locations that gets a tenant to stay five years)
 
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