Your tenant’s lease could run for a long time. It is advisable to have a solicitor who has experience in industrial real estate lease contracts. A solicitor who is only familiar with residential contracts may make unnecessary changes to a standard industrial lease contract. Of course there may be extenuating circumstances in some cases that require deletion or insertion of a clarification clause. A solicitor with experience in the industrial real estate process will work with the leasing agent to clarify the omission, or insertion, of any clauses before redrafting contracts. A quality agency who specialises in the industrial field will have worked with the solicitor they use to create a tenant lease agreement that is fair to all parties.
The following section explains the process after your agent has found a tenant for your investment property:
Negotiation Of Terms
The agent negotiates the key commercial terms of the lease directly with the tenant. The agent will be in contact with you, the owner, to ensure you have approved the proposed terms. Sometimes a tenant may request a rent-free period. This may be a period of a few weeks–for smaller value rents; up to a few months for large value rents–whilst the tenant prepares the building for the type of business that will operate on the premises. Fixtures and fittings such as special machinery, shelving or other requirements may need to be installed. Depending on the lease terms, it can be in your best interest to allow this. You would be ill-advised to turn down a lucrative five-year lease for the sake of two months’ rent. Your agent and your solicitor will always explain the pros and cons for any terms the tenant may propose.
The Solicitor Draws Up The Lease
Now that you have agreed to terms with your tenant, the agent sends the solicitor a document called a Heads of Agreement, which details those terms. The solicitor reviews the terms and then draws up a lease agreement. It can be very frustrating for both parties if the solicitor does not respond quickly at this point. Bawdens Industrial have an arrangement with the solicitor they work with that this document will be returned to them within 48 hours.
If you, as the owner of the property, are a first-time investor or are otherwise not experienced with this process, the solicitor will call you to run through the terms of the lease, and ensure that you understand and are quite comfortable with the lease terms. This gives peace of mind, especially for a first-time investor, that your interests are being protected.
Proof Of Insurance And Security Deposit
The solicitor now issues the lease to the tenant. At this time, the solicitor requests that the security deposit be paid and that proof of insurance from the tenant be supplied. The security deposit must be either in cash or in a bank guarantee. In most cases the tenant is also responsible for paying the solicitors’ fee. The deposit is held in the owner’s agent’s trust account for the duration of the tenancy.
Registering The Lease
After the tenant consults his own legal counsel, he signs and returns the lease to your solicitor. The security bond and proof of insurance are sent to the agent, following which the lease is forwarded to the owner to sign. In New South Wales, if the term of lease is longer than three years, it must be registered with The Land and Property Information (a division of the NSW Government). This involves a fee which is typically paid by the tenant. Finally, signed copies of the lease are sent to the owner, the tenant and the agent. The security bond is held in the agent’s trust account for the duration of the lease.
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