Common Commercial Real Estate Terminology In Australia
Commercial real estate terminology in Australia can often be confusing, especially if you haven’t been a commercial tenant before. It’s important you understand the real estate terms you’re confronted with, so here’s a handy guide to help you out.
The lease term is the amount of time the lease is in effect. For offices, 3-5 years is standard. However, the term can be longer or shorter depending on your negotiations with the landlord.
Option to Renew
An option to renew is a clause in a commercial lease agreement that allows a tenant to renew their lease at the end of the lease term. It could be anywhere from one year up to the original lease term.
Option to Terminate
An option to terminate is not common in lease agreements but it can be added in your contract upfront while negotiating lease terms with the landlord. The termination clause will outline the reasons a lease could be terminated before the end of the lease term and the conditions to do so.
Net Lettable Area
The net lettable area is the property’s internal floor area, according to the industry standard set by the Property Council of Australia. It doesn’t include toilets, service ducts, stairways or elevators.
Net and Gross Rent
- The net rent is just the base amount of rent payable. Tenants may be required to pay additional expenses called outgoings (see definition of outgoings further down)
- The gross rent is usually a higher amount as it includes the net rent and the outgoings
Take a look at this article to learn about how much rent you should be paying for your office space.
Rent reviews usually occur annually in line with the market, however, it will only ever be an increase. Your lease may specify a set percentage increase each year or a review per CPI (Consumer Price Index).
Rent reviews often trip up tenants because the process and terminology is vague. And this is especially true when it comes to differentiating between ‘face’ and ‘effective’ rent. Tenants, especially those new to commercial leasing, often do not understand the difference between these two terms. Learn about the difference between ‘face’ and ‘net’ rent reviews here.
Outgoings are a tenant’s proportional share of expenses such as property tax, water rates, strata levies, insurance, real estate taxes, security to name a few.
As a tenant, when it comes to outgoings, there are two important things to consider:
- The expenses that you will be responsible for paying
- The base date that will be used for calculating your outgoings.
Rent will include a Goods & Services Tax (GST) of 10%. This is a tax from the Government, not the landlord.
Utilities refer to water and electricity costs. Electricity is usually billed directly by the energy provider, but water may be included in the outgoings (see above).
Fit-out refers to alterations made to a premises, usually at the tenant’s expense. The extent of your fit-out requirements will depend on the state of the property (i.e. refurbished, warm shell, fitted-out) and your brand.
Already fitted-out your premises but short on space? Follow these eight great space-saving tips for your office.
Make Good (Restoration)
Subject to negotiation, tenants usually need to restore the premises to its original condition when the lease ends.
Here’s a great article regarding how to make good at the end of a commercial lease and avoid landlord disputes.
Security Deposit/Bank Guarantee
Tenants will be required to pay a security deposit (similar to a bond on residential properties) or a bank guarantee, which usually amounts to 3-12 month’s rent.
Car Parking (+Levy)
Car parking costs are usually charged separately to the rent, and in some cases a state government levy may apply.
Legal expenses arise from any negotiations or paperwork that you require a lawyer to undertake on your behalf.
When it comes to commercial leases, both parties will pay their own legal costs unless otherwise specified in your lease.
Stamp duty is a duty or tax imposed by the State Government on particular transactions.
When it comes to commercial leasing, you will be required to pay stamp duty if you make a lump sum payment to your landlord to secure your lease. You will also be required to pay stamp duty on the assignment or transfer of a lease.
Stamp duty rules may vary state-to-state. Here’s a bit more information about when you’ll be required to pay stamp duty on a commercial lease in NSW.
In commercial leases, both parties will pay their own stamp duty.
Get a tenant representative to help you out
A tenant advisor acts exclusively for tenants with no conflicts of interest. They give tenants the upper hand in lease negotiations and assist with communication with landlords and agents.
If you do not have the time or expertise to navigate the complexities of commercial leasing, then hiring a tenant advisor is a smart move.
The team at Tenant CS bring over 20 years experience in the Australian market and would love to help with any of your commercial real estate projects. Get in touch with one of our team members today!
Want more information? Here are seven reasons to appoint a tenant representation specialist. You can also consult this handy checklist to ensure you’ve dotted your I’s and crossed your T’s before entering a commercial lease agreement.