HINKING of purchasing your first commercial property or adding to an existing commercial portfolio? Then you need to access true “insider” advice. Not only on what and where to buy, but also to gain an in-depth knowledge of the nuances of the lease agreements that apply to retail, warehouse and office buildings.
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“As commercial property prices increase in inner Melbourne, land tax is becoming a strong component as to whether people hold or have to sell a commercial property in situations when they inherit a property.”
An incorrect decision about the type of tenant you put into your new commercial space, and the lease deal you strike, can easily become a costly mistake.
“When you are purchasing a property you need to ask: What type of tenant will lease the premises? Will they be on a retail lease or will they be on a non-retail lease? And how will that affect the bottom line?”
For one thing, if you rent out your premises under a retail lease, it is the landlord – not the tenant – who pays the land tax on the asset. But if a property is rented under a non-retail commercial lease, as usually applies to office and most warehouse rentals, the tenant typically pays for the land tax. Section 50 of Victoria’s Retail Leases Act 2003 stipulates that the landlord cannot pass on land tax to the tenant. But the leasing landscape is becoming increasingly blurred as more tenants push to be on retail leases and VCAT rules in their favour in some cases. The state planning tribunal has recently found that some business enterprises, which traditionally may have been regarded as engaged in industrial activities, can operate under retail leases. The clincher in this situation is if a customer directly visits commercial premises to purchase goods. For example, a cabinetmaker or a metal fabricator operating from a warehouse located away from traditional retail shop strips can now make convincing cases that they are, in fact, retailing. A commercial lease is the legal document that sets out the rights and responsibilities of both landlord and tenant of a commercial premises. It includes details on what the landlord will and will not do, and these leases are very different to a residential tenancy agreement.
“So it is hugely beneficial to have a non-retail lease and to have the tenant pay the land tax.”
Of course, a large proportion of commercial properties are retail premises, and Nelson Alexander sales and leasing professionals can provide clear advice on how to best structure a retail lease. This is especially important in today’s environment in which online business-to-consumer platforms are on a growth trajectory virtually everywhere around the world and traditional retailing is under pressure. In inner-Melbourne, retail tenants are increasingly requesting flexible, shorter-term leases. At the same time, retail vacancy rates are creeping up in some shopping areas. Most commercial investors who buy and lease properties through Nelson Alexander are primarily residential property investors with some commercial assets. Because of Nelson Alexander’s deep knowledge of the workings of all forms of real estate in inner Melbourne, the company is able to pick trends and opportunities early and put their commercial clients on the inside track. Mr Lunardi points out that all of Nelson Alexander’s 17 offices are located on key business strips.
Nelson Alexander Partner Kristian Lunardi says the definition of retail is changing following a number VCAT decisions.
“In Fitzroy, we’re on Brunswick Street; in Northcote, we’re on High Street,” he says. “We live and work in these communities. As a result, we know the tenants; we know the owners and are deeply entrenched in their environment, so when it comes to negotiating commercial sales and leases we have a real edge. We know so much about the local community, which can give a commercial investor a big advantage.”
“A retail lease is effectively more in favour of the tenant than the landlord, mainly because you cannot charge land tax to the tenant,” he says.
To learn more about the full range of services that Nelson Alexander’s commercial team offers clients, please call 03 9419 5511.