Melbourne Cup week is always a bit of an unusual week for my real estate practice. I find it to be a quiet week as many people are preoccupied with the big race and see it as an opportunity to take leave or do what I do with the slowdown in pace – catch up on work in readiness for the final avalanche of transactions in the short time we have until the end of our calendar year.
So, I thought I would reflect upon and provide some tips around some common issues that I see arise in my area of expertise- tenancy advisory over the years. I hope to give you some guidance so you can manage this time of year effectively.
1. The January Slow Down Shift
Many of my clients who run manufacturing, logistics and distribution businesses, who are either relocating their business or setting up new work sites, look to the post-Christmas and early new year downtime period as the only window of opportunity to be able to make this move.
Therefore, when negotiating leases, it becomes imperative to build a handover date or commencement date into the terms and conditions, to allow access during this period.
In order to facilitate this, you are going to need to have your lease documentation negotiated and signed, with all of the landlord’s requirements fulfilled, including bank guarantee and insurances. With the current markets for finance and insurances tight and a backlog at this time of year, it is taking longer to establish bank guarantees and insurances and therefore you should get started on these items as early as possible.
The other obstacle to gaining access to a premise, may be approvals from relevant authorities such as development consent for use, occupancy certificate for fit out, fire safety sign off, etc. So it’s important to look at these issues now.
2. The Building Industry Slows Down
Another big problem in the run to the end of the calendar year is the lack of availability of tradespeople to carry out fit outs for premises before the end of the year (as many fit out companies have a back log of jobs) or the lack of availability of tradespeople in the month of January, due to closure of businesses for annual leave.
This becomes a real pressure point for businesses, particularly retailers who are planning to open prior to or just after Christmas to take advantage of the uptick in sales activity during the festive season. It also becomes an issue for commercial office tenants who hope to be able to open their doors in their new offices when their staff return from leave in the early to mid-January.
So, what do I recommend?
Apart from locking in your trades as early as possible (as we speak I suspect that window is closing) and making sure all of the items I’ve already mentioned are complete – documentation signed, bank guarantee and insurances organised and ensuring you have negotiated a handover date to commence works that will allow enough time to complete the fit out.
If you think the fit out is unlikely to commence or be completed within your desired time frames, then you need to look at negotiating a delay in handover, extension of fit out and rent free periods and a delay in the commencement date to a time that works in with the availability of your trades and your own trading cycle (in the context of the season we are now in).
3. My Existing Business Home
Whilst my focus in 1 and 2 is all about moving into a new premise, if you are leaving an existing premise, don’t forget about your time frames and obligations under your existing lease.
If there is any hint of delay in handover of your new premises, then you need to make sure that your business is not left without a home because your current premises lease comes to an end (before your new home is ready). So, you should be carefully monitoring time frames for negotiations on and delivery of the new premises lease, and if required, negotiate with your current landlord an extension of your term. You may not be aware that your landlord has already secured a new tenant to move into your current premises, when your lease comes to an end – if this has happened you need to look at contingency plans to ensure there is no impact on the client continuity of your business.
Another issue that you must not forget in relation to your current premises is make good, which refers to the clause/s in a lease that sets out how a tenant should leave a property at the end of the lease term. When you are relocating to a new site, part of the cost is make good and redecoration of your current site. With the focus on the new premises lease, it often surprises me when a client leaves it to the last minute to address make good. I do not recommend that you address make good on the eve of your shift.
You need to be considering make good now if you are shifting before or over Christmas. This is because you need time to consider what your lease says about make good and redecoration, settle with the landlord as to what your obligations are and then line up trades to carry out the work (difficult at this time of year for the reasons mentioned), or negotiate a payment to the landlord in lieu of carrying out the work. The shorter the time you leave, the weaker your negotiating position is, on both particularly of make good and pricing.
4. Other Bits and Pieces
There are many other items to consider at this time of year, which must be factored into your planning around a new premise. These include delays in arranging telecommunications and internet connections, electricity metering, connections and upgrades of power that involve installing electricity substations. It becomes a problem of a lack of available people who are stretched with higher demands.
As I brace myself for the inevitable uptick in leasing transactions in the final weeks of the year, I recommend you pause for a moment and think carefully around your planning in relation to your new premises. If you can delay and not make rushed or emotional decisions, you may be better off in the long run, given the major financial and strategic implications over the long term that entering into a lease has for your business.
If you need assistance or advice in relation to your lease, make good or any items discussed in the above article, please don’t hesitate to get in touch with Coleman Greig’s Commercial Property team: