We recently sat down with Amanda Falahey from Eve Property Group to talk all things retail leasing. Eve Property Group are Melbourne-based tenant representatives, specialising in commercial and retail lease negotiations. You can learn more about them here.
1. What are some key things we should look for in a retail or commercial space?
When taking on a commercial lease for the first time, it’s important to consider these four things:
Type – What type of property do you want to lease? Do you need a retail shopfront or would an office with warehouse storage be more suitable? Be clear on what you need before you start the search.
Size – What size property do you need? If you are a franchisee you will usually be given a guide on size and type of property which is very helpful. If you don’t have this, take into consideration your needs now and into the future if your business grows.
Location – where do you want to be located? If you have a designated area within a franchise agreement, narrow down the preferred location that will suit your clientele and consider things such as car parking and proximity to public transport.
Budget – It goes without saying that this is important, but be sure that your budget is realistic and that you can afford to pay rent and outgoings for the type of property that you need in the location you want.
2. Is the advertised rental usually negotiable? How would I know if I’m paying too much?
The advertised rent is negotiable and it is important to have a good understanding of market rental rates prior to commencing negotiations with the Landlord or their Agent. We complete a market analysis for our clients which works out a market rent per square metre. This is the best method of determining rent in commercial real estate. In our business we have access to information on market rents but if you don’t have this, we recommend that you contact Leasing Agents in your area to determine what other properties have leased for and use your own contacts to your advantage as people usually like to share this information with others. This will help you work out what a fair rental amount is.
3. Do you recommend having a Heads of Agreement? Is this binding?
We always have our clients sign a Heads of Agreement (sometimes referred to as an Offer to Lease) prior to having a lease prepared. The Heads of Agreement is usually a binding agreement if it meets all the requirements of being a contract between the parties. i.e. offer, acceptance and consideration (security deposit). We recommend that you always include a condition within the Heads of Agreement to give yourself an ‘out’ if need be. For example you can include the wording “subject to Board Approval” or in the case of a Franchise, “subject to Franchisor approval” so you are not bound by the HOA if for some reason you don’t wish to proceed prior to negotiating the lease agreement.
4. How do I know if I’m covered by retail leasing legislation and what extra protections does this give me?
Most small businesses who offer products and/or services to the ‘ultimate consumer’ from their commercial property will fall under the Retail Leases Act 2003 in Victoria. The Retail Leases Act 2003 offers a fair amount of protection to tenants around notice periods and information and documentation that must be provided to you by a Landlord. It can also save you money as the Act allows for your rent to reduce at a market rent review if market rent is below what you are paying (yes – your rent could be less than what you’re paying!) and doesn’t allow a Landlord to oncharge costs to you such as legal fees for the preparation of the lease or Land Tax. You can read more about being a retail tenant here or contact the Small Business Commissioner to find out more.
5. What are the benefits of using a tenant representative?
A tenant representative is a specialised professional so you are going to see numerous benefits in outsourcing your property search and lease negotiations to them. We of course save our clients time that is better spent working on their business and generating income, rather than wasting their time calling up Leasing Agents and Landlords. We have high level negotiation skills so we will save our clients money when we negotiate rental and incentive amounts on their behalf, as well as negotiating favourable lease terms that will pay off in the long term such as no make good. To put it in the words of one of our lovely clients – “Wow! You really know your stuff”. We know commercial real estate, and that’s a huge benefit to any client. We are focused on working in our client’s best interest to make sure they get the best deal on their lease not only today, but two, three or ten years down the track. This is important to us and our clients agree that we work hard for them.