Just looking for feedback on rent for leasehold properties, i have been told that the rent for a lease hold is usual based on 22% of the previous years turn over.
any one have any experiance with this?
Tim
fwiw 22% occupancy costs would be unsustainable for most businesses. Less than half of that would be typical. How would you as a property owner feel if you had an incompetent tenant resulting in a low occupancy rate & you had no certainty of a base level rent? No base rent means the tenant can effectively live on premises rent free if they don’t attract any clients.
Hi Tim
I’d avoid a lease that wants the tenant to pay a % of their turnover each year, sounds like Westfields. If that’s what you mean.The % is just to have a formula for the initial setting of the $ rent level at the commencement of a new lease.
At the commencement of a new lease, normally the rent is set at a $ figure which ideally equals not more than 20 – 22% of turnover.
Now after the lessee commences operating the property under the lease, and if the tenant increases the turnover by his own endeavours, good luck to him, that is no reason why the landlord should get more rent. The benefit to the landlord is that his tenant is making more money and so becomes a more reliable and stable tenant, business and investment. In this case – Capital gain and extra profit go to the one who works for it – the tenant.If you mean the basis for the starting rent on a 25 year lease, then 22% would be good. Once the rent is fixed at that $ amount, then the lease increases it each year as per the agreed formula in the lease, which usually says to increase by the amount of CPI but hopefully says” by CPI but not more than 5% in any one year and not less than zero. “
If rent starts too high, then the rent compounds too quickly and the rent level and business becomes unsustainable, creating either litigation or very awkward negotiation and mediation to avoid litigation, and unless you fluke it for a very reasonable far sighted fair-minded landlord then the tenant will usually come out disadvantaged to some degree. It’s difficult to get a landlord to accept a pay cut (reduction in rent). No one likes a pay cut.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Just spent a few weeks trawling through heaps of advertised leaseholds on the market and noticed a few with rent as low as 16% and quoted as being in good condition. Without full details on the individual motels one can't say it's a great deal, but some of the rent ratios look quite favourable.
I'd just like to mention again to Tim that I'm looking for a leasehold in Wagga so please contact me – private message on this forum or email would be appreciated.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
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