Know your Obligations as a Commercial Property Owner
Whether you’re a hands-on commercial property landlord or delegate the duty to a property manager, it’s always timely to refresh your understanding of responsibilities. This article focuses on non-retail commercial premises, and you can find out more about the distinction here.
Your key responsibility is to ensure your property is in a safe, proper condition for leasing. That means keeping on top of repairs to the building’s major structural aspects, such as the roof and fixtures in common areas and lifts. That might also include refrigeration, plant and equipment. If so, your lease should state so.
However, usually, your tenant has responsibility for the walls, floors, fixtures and inclusions of the rental premises. Commercial leases tend to be unclear about who manages air-conditioning, cool-rooms, heating fixtures and wall partitions, so aim to clarify that to avoid disagreements and costs.
As part of your due diligence, ensure you carry out:
- Routine inspections – every six months is a good start to reduce the public’s risks for injuries and help prevent higher repair costs
- Preventative and/or programmed maintenance
- Up-to-date fire safety and other certifications
- Prompt repairs, so the building and equipment stay in good shape. Reasonable wear and tear on the premises, though, is expected.
Be sure to oversee cleaning and maintenance staff, so there’s a direct line of communication as soon as issues, near misses, or incidents arise. Systematically review your service contracts to assess their return for your investment. Having explicit and detailed cleaning schedules for common areas means your property will be more attractive to tenants and visitors.
Ensuring the use of the premises is legal
Check with your local council to clarify planning and zoning laws for your building. As the landlord you’re responsible for making sure tenants use your premises as permitted by law and that this is explicit in the lease.
Be mindful that a local council’s consent for a particular use of a commercially or industrially zoned site may lapse if the property has been empty/untenanted for designated periods, such as 12 months. That applies, even if the new tenant uses it the same way, so a new development application may be required. If you’re in NSW, for instance, you’ll find the detail in Environmental Planning and Assessment Act 1979. Check with your local council for clarification.
As well, there are state-specific property and conveyancing acts that regulate other types of commercial leases, including for industrial premises. They may bring in additional conditions such as the level of environmental emissions.
Complying with the lease and relevant laws
The lease is a legally binding agreement between you and your tenant and should set out each side’s obligations and responsibilities. Before both parties sign a lease, you’ll need to organise a condition report of your premise’s installed fixtures and fittings, as well as included services.
If the lease includes a redevelopment clause, it means you can end a lease before the end of its term so you can do major works. You will need to compensate your tenant, though.
Generally, there are fewer regulations and laws affecting commercial premises such as offices, or general industrial units, rather than retail shops. However, there may be heavy regulations, licences as well as health and safety laws for particular industrial uses of commercial premises.
Check your state or territory laws for commercial leasing regulation changes. This article about NSW, for example, covers the details of the prescribed changes regarding rent relief, rent increases and mediation during the COVID-19 prescribed period, which has now passed.
Securing appropriate insurance cover
When you draw up the lease, specify the type of insurance your tenant should have, including how they should cover their own fittings as well as public liability insurance. Typically, they’d need minimum insurance cover for public risk to $20 million. Once they take out cover, ask them to send you an annual certificate of currency as proof.
Your insurance as the commercial property owner will protect your business in unforeseen events, including disasters. Such cover is called commercial property, business property, or commercial building insurance and insured events usually include:
- Explosion or implosion
- Storm, wind and rain
- Water damage caused by leaking from damaged pipes, water systems, tanks or drains, or by a damaged water main near the building
- Riot or civil commotion
- Malicious acts
- Accidental damage
Because each business is different, a customised policy package is a good move. We can ensure that your insurance cover bests meets your needs and requirements. Let us guide you on the best-fit cover.
And this article may serve as a prompt to review your current insurance, including the dollar value of the rent, particularly if you own industrial property. Knight Frank Australia’s 2022 Outlook Report forecasts demand for such property will outpace supply this year. One reason is lessees are looking to expand their warehouse spaces, increase storage and process higher levels of stock to cushion their vulnerability from supply chain shocks.