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hey guys Steve palisi here entering into a commercial lease agreement is quite different from renting out a home they often cover a lot more topics that are traditionally not encountered in residential leases so both tenants and landlords need to be aware of these conditions when negotiating the lease terms I highly highly recommend you engage the services of a solicitor preferably one that specializes in commercial lease agreements to ensure that it is foolproof but in today's video I want to run you through some of the Key conditions you need to be aware of when embarking on your commercial investment Journey I'll also share a valuable resource that will help you cover all your bases so make sure you stick around until the end so what exactly is a commercial lease generally a commercial lease allows the tenant to conduct business on a property in exchange for the payment of rent to the owner of that property the lease will usually begin when both parties sign it it is usually impossible for a landlord and tenant to terminate a lease without the other party's consent or else there will be a break Clause that will require penalty amount or the rest of the lease term to be paid out so when you buy a leased commercial property you're buying a guaranteed income for the term defined in the lease agreement there are four main types of leases for commercial property gross leases net leases triple net leases and absolute net leases a growth lease is a full service agreement which means that the property owner pays for all the outgoings and the Tenant is only responsible for the rent I generally advise against this type of lease because as the owner you incur the risk that the outgoings like water rates and insurance premiums will increase and since you can't increase the rent until it's time for review this could impact your profitability a net lease generally means the tenant pays for one or more of the properties outgoings in addition to their rent such as counter rates or maintenance costs the owner is generally only responsible for the property management and land tax but they must Supply disclosure statement to the tenant outlawing which of the outgoings the tenant is responsible for the benefit of a net lease for you as the owner is that the tenant will pay any increases in outgoings so your cash flow calculations will remain accurate in a triple net lease the owner is responsible for the structure roof and parking area while the tenant is responsible for all other expenses with absolute net leases the tenant is responsible for absolutely everything related to the property the rent plus the rates taxes insurances management fees the structure and repairs and maintenance when you've decided on the type of lease you need to bear in mind that almost everything is negotiable in a commercial lease as the landlord your main focus should always be on ensuring your property is a solid investment with a good long-term tenant now what should your lease include while there are certain Clauses that are mandatory in every lease including tenant details a description of the premises and use guarantor details Bond details the start and end date of the lease the length for the lease options on the lease and the rental amount the agreement must include details about the rental increases and reviews details of any of the outgoings a tenant must pay who has responsibility for the repairs and maintenance the core trading hours and when the premises will be open for business as well as additional factors as fit out and rent fee periods and insurance in terms of the lease period generally commercial leases are either for three five or seven or ten years they are typically of multiple terms and options to renew for example three periods of three years at the end of each term the tenant has the option to renew the length that your lease will depend on the business you're renting the property to Beyond these Basics you need to make sure that the commercial lease documentation addresses your needs for example with maintenance and fit outs take some time to understand your responsibilities generally anything related to the structure of the property is the landlord's responsibility and the fit out and maintenance are the tenants responsibility but as I mentioned earlier this can be new negotiated diversely once the maintenance fit out and the party responsible for refurbishing the premises at the end of the lease have been negotiated these issues need to be clearly documented in the lease agreement you should find out what the tenant plans to change on the premises and how this will affect the structure of your building again it's a good idea to discuss any special requirements you may have with your solicitor so they can be incorporated into the lease documentation but besides addressing specific needs you need to make sure you obtain appropriate Security on the lease to protect you from tenant potentially not meeting its obligations security bonds or deposits are normally equal to three to six months rent this is an important point to clarify with your trusted legal representative it is also common these days to request a bank guarantee from your tenant Bank guarantees are just as good as cash in the sense that you'll have no problems gaining access to the funds if your tenant defaults another key condition to focus on is rental increases and rental reviews the most common rental increases for each year of the lease will be the same as the Consumer Price Index all or two to five percent at the end of the lease term the rent can be renegotiated to bring it in line with the market with shorter leases this is not as significant but with long leases between 5 and 20 years it is critical that the rent reflects what the market is doing it's best for both parties that the rent goes up evenly and regularly rather than there being a big increase in Market rent review further down the track some buyers will want big increases like five percent each year but this can aggravate the tenant if the rent climbs above the fair market rent and they can't renegotiate it until they extend or renew the lease most leases will have an allowance for Market rent reviews during the terms of the lease or upon the exercise of the options after the market review at the start of the lease or exercise of each option the lease will have either fixed options CPI increases or a combination of both so those are some of the basics this is by no means an exhaustive list of of conditions of the lease agreement so you need to do some more research into what to expect with your commercial lease it's not essential for you as a buyer to understand every detail of the lease as your solicitor will be an expert in contractual law and will review all the proposed terms and conditions but it's important though to be familiar with all the lease terms to enable you to secure better property and negotiate well as an avid commercial investor myself I've always wanted to help other investors achieve their goals so I wrote a book called commercial property investing explained simply which discusses how to find the best property for you crunch numbers do the due diligence find and manage tenants and much much more I do a deep dive into the commercial leases and what to expect so make sure you check that out I've left a link in the description box below otherwise that's it from me on this topic I hope you found this helpful but if you have any more questions please feel free to reach out I'm Steve polisi senior next on