Scenarios

Common Commercial Real Estate Scenarios

 

Scenario:

As we should all well know, completing a lease transaction requires a level of experience and knowledge and strong negotiation skills. A critical part of any lease transaction involves risk management and due diligence processes, both of which should be supported by a system that documents not only the lease negotiations but also tracks letters of offer and agreement, ensuring a proper follow-up practice is initiated once a property is leased.

I had an interesting follow-up experience recently while working to lease a landlord’s property. Two other agents were also involved in the process respectively: one working for the tenant wishing to exit the lease and one working with a potential new tenant. It was very clear in the final letter of offer to lease that a ‘holding deposit’ was to be paid by the new tenant and would be transferred for rent once leases were signed and executed. When our agency followed up on the funds to be transferred for rent, the deposit could not be found! After consulting the numerous parties involved in the transaction, I discovered the deposit had never actually been paid. This did happen in the middle of the COVID-19 pandemic, however, if good systems had been in place, the time and effort involved in the follow-up should not have been necessary.

Learning:

Good administration systems do not need to be complicated. Systems that are simple and easy to use, such as basic checklists, can save time and effort while being equally effective as more elaborate options. There are several apps that can assist with note and record keeping, some of which also allow you to upload information to your property files in real time, ensuring they remain up to date. Think about the processes involved in a leasing transaction and what checklists you could design and implement to monitor these processes and minimise risk.

Scenario:

WendyWho? is engaged by landlords, tenants, agencies and private organisations seeking advice and information on the commercial property sector. In my consultancy work I perform a number of roles, one of which is to provide expert witness reports on legal aspects of commercial property management where dispute resolution has failed and litigation is imminent.

In my experience, the key to any dispute or litigation related to commercial property management usually lies in the paperwork. Of all the cases I have worked on where the agent was included as a party to proceedings, none of the agent’s paperwork was in order. Documents such as management authorities, disclosure statements and copies of leases were incomplete because scanning errors resulted in documents missing pages or parts, or because signatures were omitted. Many managing authorities also lacked clear definition of the services provided by the agency. Errors like these are unacceptable – particularly from commercial property agents!

Learning:

Agency protocols and administration systems must be set up and monitored to ensure compliance and appropriate risk management. The most important documents in a property management system include:

  • A fully signed and compliant authority detailing the services provided by the agency. Ideally, this should be reviewed on a 12-monthly basis to ensure the services detailed are still being provided. If a review reveals that this is not the case, a new authority reflecting the actual services being delivered should be prepared. A new authority can also be an opportunity to update and include all possible fees the agency may wish to charge the client.

  • A fully signed and executed set of lease documents for each property under management (preferably as both electronic and hard copy).

These are just two recommendations that will certainly be valued for the efficiencies they achieve in your management area, and also for their ability to ‘bear witness’ should any potential legal claims arise in the future.

Scenario:

An interesting spin-off in my dealings as a consultant is that I am frequently called upon to assist clients who are potential tenants of commercial properties, but who are experiencing difficulties at the negotiation stage with their potential landlord and/or managing agent. As I assist these clients to obtain favourable lease outcomes, I also become aware not only of common knowledge gaps, but sadly, of the patent lack of knowledge, of commercial property managers and leasing agents who really ought to know better.

Learning:

We all have knowledge gaps. It is incumbent upon us as commercial property managers to continue to learn and grow as industry practitioners by attending as many professional development events and training sessions as possible. Other highly recommended strategies that will assist you to quickly progress in your career include:

  • engaging with reputable practitioners;

  • finding a trusted industry mentor; and

  • subscribing to and regularly reading articles, blogposts and e-newsletters from reliable sources.

As you seriously set about developing in your career, you will expand your knowledge-base and challenge your thinking to encompass a broader range of possibility, in this way contributing to your overall professional success and to the wider success of the profession as a whole.

Scenario:

A response from a commercial leasing agent in reply to his being questioned about the currency of the version of an REIV VicForms commercial lease (code 143) provided to a tenant:

“The lease is still a code 143 commercial lease, so I think it is still okay, however, if you want an updated version please let me know and I will send this through.”

Learning:

The agent was not using the current REIV commercial lease but an old version and was not even aware of this. It is best practice to log on to the VicForms portal regularly to keep abreast of current versions.

Scenario:

A comment from a commercial leasing agent and property manager about a new tenant’s proposed use:

The lease is not a retail tenancy because the predominant use of the property is office and storage of ribbons and trims. They have also ticked non-retail use on their application form.

Learning:

In this instance, this was not correct because the tenant had an online business and was selling to the public through its website. The tenant was thereby a retail tenant. Further, how does a tenant know if it is retail or non-retail? To include such a tick-box on a leasing application form is potentially dangerous. Rather, questions relating to the business activities of the tenant might be included.

Further Scenario:

Leasing agent’s response:

“If this is the case, then the tenant will need to agree to pay land tax because the landlord has made it clear that he wants a tenant who can pay this.”

Learning:

This is really showing a lack of knowledge. A landlord cannot pass on land tax to a retail tenant under the Retail Leases Act 2003. If a tenant is a non-retail tenant, single-holding land tax may be levied to the tenant for reimbursement. The landlord of a retail tenancy may wish to include land tax in the rental but—a word of caution—this will need to be included at the time of listing and of publication of the asking rental. It is recommended that, wherever possible, the asking rental is a current market rental.

Contact

If you have an enquiry or question, please fill in the contact form below or email me directly and I will get back to you shortly.
Or feel free to call me on my landline or mobile.

I look forward to working with you.

Call ​(03) 8317 6623

0413 134 662

OPENING HOURS
Mon - Fri: 9am - 5pm

Address:

P O Box 303,

Patterson Lakes. Vic. 3197

WendyWho?

Paragon (WMT) Pty. Ltd. Atf The Wendy Who Trust.  ABN 74 252 859 510

© 2020 All Rights Reserved. WendyWho? & Paragon (WMT) Pty Ltd.

Website Design & Concept by Wild Seed Design