Leasing a commercial or industrial property involves more than simply paying the advertised rent. Depending on the type of property and the terms of the lease, tenants may be responsible for a range of additional costs. Understanding these expenses before signing a lease will help you budget accurately and avoid unexpected financial commitments.
Rent
The largest ongoing expense is the base or net rent, which is usually quoted as an annual amount per square metre (plus GST) for commercial and industrial properties. Rent is commonly paid monthly in advance and may be subject to annual or bi-annual increases based on a fixed percentage, CPI, market review, or a combination of these methods.
Outgoings
Unlike most residential leases, commercial tenants are usually required to pay the property’s outgoings in addition to the net rent. These can include:
- Council rates
- Water and sewerage charges
- Land tax (where permitted under the lease)
- Building insurance
- Body corporate levies (is applicable)
- Property management fees (in some leases)
- Common area cleaning and maintenance
- Security services
- Air-conditioning maintenance
- Fire safety compliance
Always check whether the advertised rent is gross (outgoings included) or net (outgoings payable in addition to rent).
GST
Commercial rents are generally subject to 10% GST, unless a specific exemption applies.
Bond or Bank Guarantee
Most landlords require security before the lease commences. This is typically:
- Three to six months’ gross rent as a cash bond; or
- A bank guarantee for a similar amount.
The amount required often depends on the tenant’s financial strength, lease term and business history.
Legal Fees
It is strongly recommended that tenants engage a solicitor experienced in commercial leasing to review the lease before signing. Legal fees typically range from $1,000 to $3,000+, depending on the complexity of the lease.
Fit-Out Costs
Many commercial and industrial premises require modifications before occupation to suit the needs of the incoming business such as:
- Office partitioning
- Flooring and painting
- Electrical and data cabling
- Air-conditioning upgrades
- Lighting
- Signage
- Shelving or warehouse fit-outs
These costs can range from a few thousand dollars to hundreds of thousands of dollars, depending on the business requirements. In some cases, landlords may contribute a fit-out incentive as part of the lease negotiations. This is part of the initial lease negotiations.
Make Good Obligations
Many leases require tenants to return the premises to its original condition at the end of the lease term. This may involve:
- Removing fit-outs
- Repainting
- Repairing damage
- Replacing flooring
- Removing signage
Make good costs should be considered before signing the lease, as they can become a significant end-of-lease expense.
Utility Connections and Ongoing Services
Tenants are generally responsible for:
- Electricity
- Water (where separately metered)
- Gas
- Internet and telecommunications
- Waste collection
- Cleaning services
Insurance
Most leases require tenants to maintain:
- Public liability insurance
- Contents insurance
- Plate glass insurance (where applicable)
- Business interruption insurance
The landlord typically insures the building itself, with the cost often recovered through outgoings.
Typical Upfront Costs
Before moving into a commercial or industrial property, tenants should budget for:
- First two month’s rent up front
- GST (where applicable)
- Bond or bank guarantee
- Legal fees
- Fit-out costs
- Utility connection fees
- Insurance premiums
The Bottom Line
The advertised rent is only one part of the overall cost of leasing a commercial or industrial property. Outgoings, GST, fit-out expenses, legal fees, insurance and end-of-lease obligations can significantly affect the total cost of occupancy. Before signing a lease, carefully review all financial obligations and seek advice from a commercial leasing agent and/or solicitor to ensure the property suits both your operational needs and your budget.
Disclaimer This article is general in nature, and outlines general market trends and a general analysis of one or more particular areas. This article should not be construed as providing financial advice (particularly as to whether a reader should or should not invest in a particular area). For financial advice we recommend that readers contact a licensed financial planner to obtain specific advice that takes into account their particular circumstances. Top Property Agents Australia Pty Ltd is not licensed to provide financial advice under the Corporations Act 2001 (Cth) and related legislation.