Business premises

SBDC BLOG How to make good at the end of your commercial lease There can often be confusion and disputes when you’re exiting a commercial lease and need to meet a number of ‘make good’ obligations. The make good clause in your lease will outline the condition the building must be in when the lease comes to an end. Here is a summary of the top make good obligations that most often lead to a dispute, and some actions you can take to keep things sailing smoothly. Tip Make sure that you refer to your lease before doing any make good works. If you are unclear about information in your lease, call our free business advisory service for guidance from one of our commercial tenancy advisers. Returning the premises to an ‘as is’ basis It’s quite common for tenants to make improvements to what was in place during the course of their lease. Your lease may state that you have to return the property to the state it was in prior to you accessing and fitting out the premises. If you have completed any work in the tenancy (ie. installed partitions, false ceiling, or floor coverings) it’s best to talk to your landlord first and clarify what, if anything, they want to keep in place. In the absence of any agreement, the premises must be returned to the state which is specified in the lease. A landlord may be happy to accept the premises back with the modifications you have made, which will save you time and money. It is, however, best practice to get this confirmed in writing so you have a record of this agreement that you can refer to in the future, if needed. By reviewing your lease, you will be able to determine any fixtures and fittings that are owned by the landlord, and will help you work out what you can take with you and what remains the landlord’s property at the end of the lease. Tip When seeking confirmation from the landlord, it’s best to provide a date for response in your request. For example: ‘Please confirm by that the works completed in the tenancy can remain in place. If we do not hear back from you by this date, work will commence to remove these modifications.” When should make good work take place? It is best to do them during the term of the lease. If you are carrying out works when the lease has ended, this can lead to disputes over when the lease technically ended, as you are still in the tenancy and delaying the landlord from renting to other tenants. The landlord could, in this situation, charge additional rent and outgoings in addition to making good the premises themselves at your cost. Who is responsible for building damage and repairs? Like most things when it comes to renting, it’s best to refer to your lease. It’s quite common for make good terms to require you to paint the walls, regardless of the state they were in when you entered the lease. There may have been building damage before you entered into the lease, so refer to any property inspection reports and photos you have to use as evidence of any pre-existing issues that you do not believe you are responsible to repair or replace. Resolving structural or fair wear and tear issues Tenants are generally not responsible for structural repairs or damage through fair wear and tear. Each lease can vary so it is important to refer to your lease. What is considered structural damage or fair wear and tear can often become a cause for dispute. In this situation, our dispute resolution service or commercial tenancy advisers may be able to assist. If you are unable to come to an agreement with your landlord contact one of our commercial tenancy advisers on 133 140 for free guidance. Approval for trades to work on site This is specific to businesses located in shopping centres. If you will have trades entering your tenancy, centre management might have a policy that requires you to get their permission and/or need to complete occupational health and safety paperwork before your tradies can come on site. Getting your bond or bank guarantee back When you’re approaching the end of your lease, contact the landlord or renting agent to schedule an agreed deadline for a final property inspection to take place and commitment for the return of the bond. Check your lease to see if the final sign off on make good works lies with the agent or the landlord, and ensure you have sign off in writing from the required party. An area where business owners can often get stuck is tenants saying they received sign off from the agent, however the landlord believes that the requirements of the lease have not been met. While this dispute is taking place, you’ll be unlikely to have your bond or bank guarantee returned, so be sure to get sign off in writing from the appropriate party. If you’re in dispute over the return of a bond or bank guarantee, you can contact our free dispute resolution service for help. In summary When it comes to leasing, we recommend that you: Refer to the lease Be proactive Communicate regularly (and keep records in writing) The SBDC’s commercial tenancy advisers and dispute resolution service are always available to provide free assistance if you’re having issues communicating with your landlord or finalising disputes related to your lease. You can access both services by calling 133 140. More information Read our tips for resolving leasing problems Download our Leasing business premises: A commercial and practical guide Find out more about our free business advisory and dispute resolution services. Dispute Resolution Business Premises Share Facebook-f Instagram Youtube Linkedin Related Articles 1 July 2024 changes that may affect your business Learn more Are you using the right tax or BAS agent? Learn more Addressing your business practices in grant and tender applications Learn more

SBDC BLOG Has your rent increase been calculated fairly? The cost of renting your premises can be one of the biggest overheads in your business, and can put the pressure on you when a rental increase is looming. Learn about market rent reviews and what you can do if you’re a tenant facing rising rental costs. The costs of being in business are rising because of inflation, interest rate rises and other economic factors. If you rent your business premises, you might find your lease includes details of annual rent increases. Rental increases are often calculated using a formula such as the consumer price index (CPI) plus two per cent, or what’s known as a market review (MR). Here’s your guide to understanding market reviews and how these can impact your rent and therefore, your bottom line in business. What is a market review? A market review is a formal process conducted by someone who is licensed under the Land Valuers Licensing Act 1978. Just as homes and commercial properties are valued for sale, a licenced land valuer will take the property value and a number of other market factors into account, to work out what kind of rent could be payable at the time of the review, in a free and open market. What is an informal market review? Some landlords or managing agents (real estate agents) conduct their own informal market reviews. They might base their reviews on local factors and conditions to come up with what they see as a relevant value. Here’s how that might happen: The managing agent might either assume the inflation rate (from the daily media) or access research from the Australian Bureau of Statistics website. They then apply this CPI inflation figure to the rent. Their tenant is then informed of a rent increase, which is usually based on a percentage increase to their current rent. Case study Our SBDC advisory team was contacted by a commercial tenant whose managing agent calculated an 88 per cent increase in their annual rent. This kind of rental increase may be designed to test the tenant’s level of resistance. If they agreed to pay this much extra, it could create a new level of property value, which could easily lead to further rental increases in future. When the tenant challenged this rent rise, the managing agent stated that a legal opinion supported the calculation. Sometimes, if tenants challenge the informal market review, the landlord might not have any evidence except for examples from other properties in the area. Tenants who question the rental increase are sometimes met with a breach notice and intimidation tactics. In this scenario, the tenant can: Request the managing agent provide evidence* to support the legal opinion of the calculation. If no scientific evidence is provided, the tenant can undertake their own research on local values and use this information as part of negotiations. If there is no resolution following the steps above, contact our commercial tenancy advisers for further advice. *The rent obtainable in a free and open market if the property was vacant and being let on similar terms as contained in the current lease, but excluding any fittings or fixtures in the property that are not owned by the landlord or structural improvements paid for by the tenant. What to do if you’re facing an unfair rent increase If your business is facing a rent increase and you think it may have been calculated using an informal market review system, you might like to: Check your lease documents to understand how any price increases are calculated, according to what you have agreed in your contract. Ask your accountant for an independent calculation of the rent increase. Once your accountant has calculated a new figure, ask them to write a letter to your managing agent setting out the correct figure. They can include how this has been calculated fairly and correctly in line with your lease documents. By engaging your accountant to calculate and communicate a fair rental increase to your managing agent, you can take more control of the situation and might be able to avoid any intimidation tactics from your landlord or managing agent. At the Small Business Development Corporation, we’ve found an increase in the number of small business owners getting in touch about the rising cost of rent. We have between five and ten enquiries on these kinds of issues every week . Even if your rent increase is fair, you still have options Your rent could be increasing after a formal market review conducted by a licensed professional and in line with your contract or lease. If this has been calculated properly, you may not be able to challenge your new rent, but you still have options within your business. Here are some tips which could help you manage an increase to your rental costs. Consider your business model Look at your long-term plans for your business operations. If you don’t see the value in paying more for your current premises, you might be able to find other premises or explore other options such as an online model. Check your supply contracts Make sure you understand the terms and the risks of any unexpected price increases from your suppliers.. Look at your costs Review your annual leasing costs, employment costs and other expenses to calculate at what point you might encounter financial issues. Calculating this as your benchmark can help you be better prepared and make informed decisions. Consider your pricing If your pricing needs to be reviewed and raised, take steps to put this in place and give your customers some advance notice. Try not to leave a price increase until you’re already facing financial pressures. With a rent rise looming, the sooner you act, the more options you might have. Your business might not suffer any financial stress when your rent is first raised, but you might find that other costs rise at the same time. It can take six to eight months before

SBDC BLOG How CPI is calculated for commercial leases If your rent is due to increase based on the consumer price index, here’s your guide to how it works and the calculations which could be used to work out your rent. The consumer price index (CPI) is a measure of how much the average costs of a fixed basket of goods changes over time. It is calculated quarterly and published by the Australian Bureau of Statistics (ABS) as a measure of inflation. As inflation goes up, your commercial leasing costs are likely to rise too. Here’s your guide to the CPI calculations which could be used for your commercial lease. Start with your lease documents First, check your commercial lease to confirm when and how your rent will be reviewed. If your lease shows that a CPI rent review is due, check the definition of CPI that is used. The precise wording might seem like a trivial detail, but it could have an impact on how any cost increases are calculated. Your lease might say “Consumer Price Index (All Groups – Perth)” for the year ending the quarter immediately before your CPI rent review date, or something similar. Locate the relevant data Once you know which definition of CPI applies to your rent, visit the ABS website for the latest information. Here’s how to find the right CPI figure: Visit the CPI page on the ABS website Click on the Data download button at the top of the page Download TABLES 1and 2. CPI: All Groups, Index Numbers and Percentage Changes When the file has downloaded, select tab Data1 Find the relevant CPI percentage. Column 0 has the CPI Perth All Groups – Percentage Change from Corresponding Quarter of Previous Year. Once you have the right figure (which matches how your lease defines CPI), you can apply this to your rent.  Tip To ensure you are referring to the right CPI figure, make sure you download the CPI table as per the steps above. The graph displayed on the ABS website’s CPI page is a national average, which is not the correct figure to refer to. Check your rent calculation To calculate changes to your rent, divide the CPI percentage by 100 to get a decimal figure. Then, multiply this number by your current rent. Finally, add this number to your current rent. (Current rent x CPI percentage ÷ 100) + current rent = new rent Here’s an example. We’ll assume your rent is currently $10,000 and the CPI figure which applies is 5.8. Current rent =$10,000CPI%=5.8 $10,000 x 5.8 ÷ 100 + $10,000 =$10,580 A shortcut form of this calculation is to multiply your current rent by CPI% plus one. Shortcut:Current rent x 1+CPI%$10,000 x 1.058=$10,580 Make sure your rent has been calculated correctly If you run this calculation based on the wording in your lease, you should get the same figure your landlord has calculated for your new rent amount.  Read Has your rent increase been calculated fairly? for more details on rent reviews and what you can do.  Contact the SBDC for the support you need If you are unsure about the terms of your lease, or how to calculate your CPI rent review, did you know you can get free advice from the SBDC’s commercial tenancy specialists? We can help with this and other guidance on your commercial lease. Call 133 140 or complete the form on our business advisory page to request a call from an adviser. You can also: Explore the business premises section of our website for more information on leasing commercial premises. Learn what to do if you are struggling to pay rent for your business. If you need to increase your prices to cover increased costs of doing business, learn how to tell your customers about your price rise. Starting and Growing Business Premises Share Facebook-f Instagram Youtube Linkedin Related Articles 1 July 2024 changes that may affect your business Learn more Are you using the right tax or BAS agent? Learn more Addressing your business practices in grant and tender applications Learn more

SBDC BLOG Can my landlord do that? It’s no secret that the cost of practically everything seems to have risen. As a commercial leasing tenant, it’s important to understand the outgoing clauses in your lease, so there are no surprises later on. Our business advisers spend a lot of time speaking with small business owners across WA. One question appears to be coming up frequently in relation to leasing costs: “Can my landlord do that?” If outgoings in your lease, which might include maintenance, management fees and strata levies, have gone up more than you were expecting, it could be time to learn more about what’s involved and whether the charges are fair. Understanding commercial leases With any queries relating to your landlord and lease, the best place to start is your commercial lease. Look closely at the lease you have signed and check the clauses relating to the costs of leasing your premises. You might find your lease includes – or doesn’t include – costs such as land tax, building insurance, council and water rates, security, general repairs and maintenance or cleaning. Leases covered by the Commercial Tenancy (Retail Shops) Agreements Act 1985 (the CT Act) need to itemise any operating expenses that tenants are responsible for contributing to and provide you with a budget of estimated operating expenses before the beginning of the new financial year. You are not required to pay monthly instalments of expenses until you have been provided with a budget. You could also be entitled to sight the invoices or receipts involved to confirm the increase in expenses. To learn more about what to look for in your lease, read our guide to understanding commercial leases. Retail and non-retail leases can include different costs Commercial non-retail leases might include costs you have less control over, such as management fees, legal fees and other costs. Retail leases have some protections built in through the CT Act. For example, management fees can’t be passed on to tenants and retail tenants who pay strata levies do not have to pay for the management fee or administration costs included in any levy. A retail lease generally applies if there is a group of five or more shops or retail services adjacent to each other, or to premises located in a shopping centre. Some business types such as hair and beauty salons, tattoo parlours, drycleaning and shoe repairs are considered retail leases even if they are not in a group of five or more shops. In other cases, non-retail businesses can benefit from retail shop lease conditions even though their business is not retail – for example, an accounting practice in a strip of five or more retail shops. Regardless of which type of lease you have, you can ask for your lease to include the need for budgets or invoices to be provided to you if there is an issue in future. For example, if your lease includes maintenance costs, your landlord might be able to have some control over these expenses by getting different quotes before committing to one provider. Prepare for your next commercial lease Whether you’re just starting up, moving premises or your current lease is due for renewal, it’s important to know what to look for in your next commercial lease – particularly in relation to costs which might change over time. While rents increase during a lease period, so too can variable outgoing expenses and this is often overlooked when considering the cost of a new lease. Before entering a new lease, you can work with your landlord to see if they are open to negotiation on operating expenses to exclude certain items. Sometimes, business owners can negotiate a gross rental agreement, rather than rent and outgoings. It’s important to remember that outgoings should be based on cost recovery and we encourage tenants to seek an itemised outgoings budget for the current financial year from the landlord. Get professional guidance or advice Ultimately, it’s important to check or review your lease carefully and seek professional legal advice if you need it, based on the type of lease you have. At the SBDC, while we can’t give legal advice, our experienced commercial tenancy advisers can give information and guidance to tenants and landlords on the CT Act, lease negotiations and other aspects of commercial leasing. Call 133 140 or complete the form on our business advisory page to request a call from an one of our commercial tenancy advisers. For more information on leasing commercial premises, explore the business premises section of our website. Business Premises Share Facebook-f Instagram Youtube Linkedin Related Articles 1 July 2024 changes that may affect your business Learn more Are you using the right tax or BAS agent? Learn more Addressing your business practices in grant and tender applications Learn more

SBDC BLOG Extended Christmas trading hours The State Government has approved extended trading hours for general retail shops in the Perth metro area in the lead-up to Christmas. While businesses classed as small or speciality retailers can generally trade across whichever hours they choose, if you’re a small retailer that’s based in a shopping centre (and have to follow standard trading hours) the extended Christmas trading period will give you the chance to open your business for more hours to make the most of the shopping season. The extended trading period will start on Saturday 9 December 2023 and end on Monday 1 January 2024. Tip All shops are regarded as general retail shops unless they are a small retail shop, special retail shop, service station or motor vehicle shop. Extended trading hours for Christmas 2023 During the extended trade period, general retail stores in the Perth metro area may open from: 8am to 9pm on weekdays (normal trading) 8am to 6pm on Saturdays (commencing from Saturday 9 December) 8am to 6pm on Sundays (commencing from Sunday 10 December) 8am to 6pm on Boxing Day and New Year’s Day public holidays If you decide to open during the extended Christmas trading hours, you may be required to contribute towards the additional operating costs incurred by your landlord. Read our extended Christmas trade and your lease and outgoing clauses in your lease articles to find out more. If you are a business owner in regional Western Australia, extended Christmas retail trading hours vary by location. Visit the Department of Mines, Industry Regulation and Safety website for more information on regional Christmas trading hours. Please Note : General retail stores will need to remain closed on Christmas Day. Plan ahead for the Christmas and New Year period With the year flying by we recommend that you start planning for the holiday season now. This can include having plans around: sourcing casual staff early, and considering offering incentives to attract staff communicating any changes to your opening hours during the festive season to your customers and suppliers understanding your obligations as an employer if you are open for business on a public holiday planning how you will manage the refunds and replacements which often come after Christmas. Remember to make time for yourself The combination of longer trading hours and family obligations can make the Christmas and New Year period particularly tiring for business owners and staff. See our tips on managing stress and anxiety to help you keep on top of things during what can be a stressful time and consider taking a holiday from your business once the business period is over. More information For more tips and advice on running your business: Contact our free business advisory service Sign up for our fortnightly e-news Attend one of our low cost business skills workshops Read the SBDC Blog for the latest updates for small business Business Premises Legal and Risk Share Facebook-f Instagram Youtube Linkedin Related Articles 1 July 2024 changes that may affect your business Learn more Are you using the right tax or BAS agent? Learn more Addressing your business practices in grant and tender applications Learn more

SBDC BLOG 3 steps for getting building damage repaired When you walk into your business premises and see the roof is leaking, your focus is going to be on getting the problem fixed as soon as possible. But who do you turn to and what should you do in these situations? We’ve put together three simple steps to guide you through getting any damage to your business premises fixed in a timely manner. 3 steps for getting weather damage repaired Step one: Work out what caused the damage Understanding what caused the damage may help you determine what you can do to stop it getting worse. Preventing further damage should always be the first step you take. From there, you can then determine whose responsibility it is to repair it. In most leasing arrangements, the landlord is responsible for carrying out structural repairs to the building, but if the damage was caused because of something you, an employee or customer has done, it’s likely you’ll have to foot the bill. It’s good practice to get the damage assessed by an independent contractor who can determine the cause of the damage. Step two: Contact your landlord in writing Notify your landlord in writing of the damage as soon as possible and provide them with the following information: details of the building/structural damage explain how the damage is affecting your business (for example: a leaking roof is damaging your stock) ask that repairs are done in a reasonable time frame (as soon as practical) if you have time, you can also get quotes for the repairs to pass on to the landlord Tip Text messages are generally not accepted as forms of providing written notice. Check your lease for details on how you should notify the landlord in writing (for example, if a letter is required or an email is suitable). If you’re sending an email, be sure to send it to the email address the landlord uses to communicate with you. Step three: Get professional advice If your lease doesn’t state who is responsible for the damage and/or you haven’t been able to make inroads with your landlord, you can receive practical advice on a range of leasing issues by speaking to one of our commercial tenancy advisors via our free business advisory service. Our business advisory service can also help you resolve business disputes. If needed, our business advisers can refer you to our dispute resolution service which is provides an easy to access means of resolving business disputes quickly. You can access our advisory services by calling 133 140. Time for a risk management plan? Having a risk management plan can help you plan around, and manage, any disruptions to your business operations, such as damage to your premises as a result of wet weather and/ or any other situation that may have a negative effect on your business. Read our risk management information for a step-by-step guide on how to prepare a risk management plan, including a risk analysis matrix to help you determine the level of risk to your business certain situations would present. Business Premises Share Facebook-f Instagram Youtube Linkedin Related Articles 1 July 2024 changes that may affect your business Learn more Are you using the right tax or BAS agent? Learn more Addressing your business practices in grant and tender applications Learn more