Pharmacy Daily | Beware potential rental pitfalls

BUYER and tenant advocate Paul Rowe shares some potential pitfalls to watch out for when leasing.

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IT WAS great to read the opinion by Mark Raphael (Leasing? Time to research and strategise, PD 16 Oct), and, having been a tenant advocate for some 20 years, I would make these additional comments.

The landscape of leasing has most certainly turned in favour of the landlord since the government-imposed period during and post COVID.

Landlords are seeking to recover the perceived "costs" incurred when they provided leasing relief during the pandemic.

We are finding that market reviews are turning into a battle zone, where the landlord in many cases understands that the tenant may be unable or unwilling to move, and as such has greater flexibility to increase rent prices, pushing against upper rental parameters.

Bigger issues facing tenants these days, within what has become a hot commercial market, are redevelopment clauses within their leases.

These allow the landlord, under certain circumstances, to order the tenant to leave if they decide to go ahead with a development.

Dependent on the tenancy and the lease documentation, there can be some assistance given by the landlord to re-house the tenant, but in other cases the tenant will need to find somewhere to go at great cost and inconvenience to them and their business.

Additionally, with shopping centres there are often requirements for the tenant to complete a refit of their premises every five to seven years.

This can cost upwards of $1,800-2,300 per square metre, which equates to around $400k on a 200m2 site.

This cost has to be borne by the tenant and undermines any growth that they may have been able to achieve in previous years.

Lastly, and often unrealised, is the fact that if a tenant wishes to sell their business, they may well need to assign their lease to the new business owner.

Unfortunately, there are situations where a landlord may decline to accept the assignment, even if the new owner/tenant financially stacks up.

This can potentially be taken to court, but realistically, commencing legal action against a new landlord is fraught with danger - one result, which I have seen in practice, can be that the business owner is not able to sell their business, placing them in a very difficult financial position.

As always in business, getting good professional advice on the way into a lease - not after signing the lease - is far more advantageous.

Paul Rowe is a pharmacy specialist with NAI Harcourts commercial real estate services.