Beginner’s guide to buying a commercial property for investment - Part 4: maintenance costs, refurbishments and outgoings of commercial property investment
Commercial property maintenance
costs
Typically, the maintenance costs are not covered by the
owner the allocation of responsibility for the particular repair or maintenance
action will be prescribed in the Leasing Agreement. The tenant will generally
be required to keep the premises up to the relevant health and safety standards
and is responsible for any refurbishments which will usually require approval
by the landlord, which again should be specified in the Leasing Agreement.
However, if the commercial property that you are considering purchasing is
rundown and will require costly refurbishments it is likely to deter any
potential tenants from leasing it as they are usually aware of how costly it
will be for them and thus select a property that is already in good condition.
Furthermore, especially in areas where there is a high vacancy rate, if the
lease is coming to an end the owner may decide to undertake refurbishments in
an attempt to retain the tenant rather than have a vacant property.
Refurbishments
Make a detailed condition report of the property before
entering into the lease. The condition report should document the condition of
the premises at the time the tenant takes control and before the tenant makes
any changes. Also just like a residential property, take date-stamped
photographs for yourself and the tenant for a visual record of the condition in
case a dispute arises and photos are needed as evidence.
Many premises will need fixtures, fittings and services
installed. Who is responsible for the fit-out costs will be determined by
negotiation and documented in the Lease Agreement between the tenant and the
landlord. As the owner you may also want to specify which tradespeople can
undertake any refurbishment work to ensure that the work conducted to your
asset is of high quality. Some commercial property landlords (especially shop
or shopping centre owners) will also require that the tenant renovates the
premises on a regular basis (as you agree in the lease agreement) to ensure
that the property remains in good condition and can continue to attract quality
customers and tenants into the future.
Note: refurbish or refitting requirements in the lease
agreement will be void unless the relevant clauses provides sufficient detail
to indicate its nature, extent and the timing or any refit or refurbishment.
Furthermore, the cost that the tenant is required to contribute towards the
cost of any of the landlord’s finishes, fixtures, fittings, equipment or
services can be voided unless the landlord notifies the tenant of these costs
in the Disclosure Statement that is given to the tenant.
Outgoings
Outgoings such as council rates, insurance, repairs and
maintenance are typically paid by the tenant in accordance with the Lease
Agreement. This is unlike a residential investment property where these costs
are borne by the owner.
Find the full guide here: Commercial property buyers - guide for investors
Back to part 3 - Lease duration, quality of tenants and purchase costs of commercial property
Beginner’s guide
Are you looking to finance a commercial property?
Oak Laurel have specialist commercial property finance broker that can help you compare commercial property finance rates. Furthermore, our specialists can make comparing the different loans and obtaining the right loan for your commercial property simple and easy. Contact Oak Laurel to find out more about commercial property finance.
Oak Laurel - finance made easy!
