Becoming a commercial landlord

BUYING a commercial property and leasing it out can be a wonderful investment strategy, but it pays to know what you’re in for. Particularly if you’re new to the game, you need to do your research to ensure you’re across all of the expectations and requirements that come with being the landlord of a commercial property. Here are a few things you need to know before becoming a commercial landlord:

Know your rights

It’s vital to know your rights before becoming a commercial landlord. Among the most basic rights, you:

■ Are entitled to charge rent for your property and review that rent in accordance with the lease.

■ Have the right to hold a bank guarantee as protection in case your tenant defaults on their lease.

■ Can inspect your premises during business hours once the tenant is provided with reasonable notice.

Know your responsibilities

Knowing what you’re responsible for is just as important as knowing your rights before buying a commercial property. The responsibilities of a commercial landlord include:

■ Ensuring the property is in good condition before leasing.

■ Adhering to the conditions in the lease.

■ Making sure the building is insured.

Choose the right type of building

If you’re dipping your toes in the commercial property market for the first time, do your research on what type of building you want to invest in. While retail premises may attract higher rents compared with other commercial properties such as factories or offices, tenant turnover is often higher due to the nature of the industry. Argent Law senior lawyer Darby Nunan, who has decades of experience representing commercial landlords across Victoria, NSW and Queensland, says aspiring landlords should consider if they’re happy to accept the higher risk that comes with certain types of properties. “Retail will quite often command a higher return per square metre – some leases are very lucrative but they’re also more risky,” Nunan says.

Unexpected costs

When renting out your commercial premises, you may need to spend some extra cash to prepare the lease. “With a retail lease, the landlord has to actually cover the cost of preparing the lease, whereas with a normal commercial lease, it’s the tenant who pays for that,” Nunan explains.

Know what legislation applies to you

The laws on leasing commercial property vary slightly from state to state. While the legislation is generally quite similar, it’s important to do your research on what specific acts apply to you, depending on where your commercial property is located.

Do background checks on potential tenants

Just as you would if you were renting out your home, you want to make sure those leasing out your commercial premises will be good tenants. Nunan says you should first check their history of previous commercial leases. “You also need to make sure you get a guarantor to guarantee the rent will be paid, and make sure that’s binding.”