Raine and Horne Commercial

10 Optimise the outcome for you your Tenant(s) With COVID hopefully rapidly disappearing into the distance and the local market showing encouraging signs of recovery, it is an ideal time to look at the options and arrangements that can be put in place for new tenants or for lease renewals. Whilst there are numerous variations or hybrid arrangements than in this article we will briefly be looking at the basic arrangements and principles to assist in deciding what set up will optimise the outcome for you and your tenant(s) Gross leases This incorporates the rental and outgoings in a single monthly charge and is ideally suited to properties where the potential for any large variation in the outgoings cost is limited and for tenants that need a large degree of certainty in relation to cost. Accordingly, this arrangement is generally considered more suitable for newer properties were the need of substantial repairs is limited, smaller tenants that are very cash flow sensitive or for small retail tenants due to conditions set out in the Retail Leases Act The advantage of this arrangement is that it is very simple to administer but it should be appreciated that if costs blow out, the owner, may be left substantially out of pocket. Net Leases This arrangement provides for the tenant to be charged separately on a monthly basis for both the rental and outgoings. The outgoings rate is calculated by reference to a budget that is prepared prior to the beginning of the financial year with the total estimated expenses being charged in equal monthly increments over the 12 month of the relevant financial year. At the end of this period a reconciliation is carried out to compare the actual expenses incurred against the amount paid by the tenant based on the budget and any variance accounted for by either a refund or an additional charge. This is arguably the most common system adopted and the most equitable arrangement for both parties as expenses are directly related to costs. Additionally it has a huge advantage in that it keeps the tenant expenses at the same level every month throughout the year providing certainty in relation to the their monthly cost. Direct Recovery As the name suggest, this arrangement provides for the tenant to be invoiced directly as and when expenses occur and although equitable in relation to the apportionment of cost, it has a number of substantial downfalls in that many larger expense items are invoiced on a quarterly basis and this can result in large expense spikes for the tenant throughout the year. Experience has shown that this can result in serious cash flow problems for all but the most organised of tenants and accordingly this system of recovery is generally reserved for situations when the tenants outgoings liabilities are substantial reduced or they are of such a size that the spike in cost do not have a detrimental effect. In summary, choosing the best way to address the recovery of expense, the administration and set up can make a huge difference to the success of your investment and with a team of seven full time experienced Commercial Managers we are always available to assist and would love to hear from you should you require some help. Wri en by Toby Sopp, Head of Asset Management. Marg Norm Beechey “Our sincere thanks to Raine & Horne Commercial for performing first class commercial property management on our property. Expert negotiations with the outgoing tenant to secure the correct refurbishment and the professional approach to successfully re-lease the property to a solid new tenant was handled in the most experienced manner.” Graeme Bernade e Wallace “We would like to take this opportunity to acknowledge the quality Asset Management Services you have been providing to us. The reports are accurate and timely, the arrears are non-existent, you remit early in the month, you have been proactive in maintaining and growing the cash flow and you have created substantial value growth in our Super Fund property. We respect your team and have no reservations in recommending your services to other clients.” What our clients are saying about our service