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FAQs from First-Time Commercial Tenants

FAQs from First-Time Commercial Tenants

In today’s blog post, we will be delving into some questions commonly asked by first-time commercial tenants:

1. What is GLA? Why does this space seem smaller than the specified size?

Rentable area is another term for gross lettable area (or GLA). This is the space that a commercial property landlord bases their rent and expenses charges to a tenant on.

For example: You as a tenant see 300m² of rentable area (GLA specified for the lease). When you actually measure the office, you count 350m² (usable area). The extra 50m² is your calculated pro-rata share of the common areas.

Other areas that may be included over and above this are balconies, terraces, storerooms, and parking. SAPOA (The South African Property Association) has a standard measurement method which is commonly used.

2. How is my monthly rental calculated and what does this include and exclude?

Landlords structure their rentals differently and the answers below are based on a general example of how these are calculated.  Where the premises are shared with multiple tenants, the costs and expenses are generally split on a pro-rata basis.

a) What does the gross rental include?

The operating costs, these are added to the Net Rental (Base Rental).

b) What are the operating costs?

These generally cover security, property management, maintenance, rates and taxes, refuse, sewerage, insurance, and levies.

c) What additional expenses can I expect each month over and above the gross rental?

Other areas that you may be utilising for example balconies, terraces, storerooms, and parking (If this is not included in your GLA) as well as cleaning, insurance, fibre, electricity & water, generator/solar back-up and/or back-up water, levies etc.

3) How much will the deposit be?

Deposits can be anything from one to three month’s rent, this depends on the landlord, the industry, and the type of tenant. There may also be a utilities or damage deposit requested. The landlord could also require a personal suretyship; you can sometimes negotiate that this be waived in exchange for a higher deposit. The deposit can be transferred by EFT or presented in the form of a guarantee.

4) What is a Tenant Installation (TI) and how much will this be?

This is an allowance the landlord gives to the tenant to fit out and modify a leased space to make it more suitable to the tenant’s specific needs. It typically covers carpets, tiles, partitioning, electrical/IT work, and painting. Generally, only afforded to a tenant who is taking a minimum of a three-year lease, but there are some attractive deals on offer at the moment. This is normally calculated as a month’s rental for each year of the lease taken, but it depends on the landlord.

Be clear on what the installation allowance covers.  What the landlord will pay for and what the tenant will be responsible for.  If the cost of the fit-out amounts to more than the allowance the excess will be for the tenant’s own account.  If the tenant uses less than the installation allowance afforded, find out if this would be made available to use in the future and how long this would be available for if this is the case.

It is also imperative that the parties agree what installations will belong to the landlord, what belong to the tenant, and what must be removed by the tenant when the lease ends. The tenant may be required to reinstate the premises to the condition they were in at the occupation date.

5) What is Beneficial Occupation?

A rent-free period provided by the landlord in order to give the tenant time to fit out and ready their premises before moving in. It can also be used in lieu of, or in conjunction with, the TI.

The tenant is still liable for the operating and utilities costs during this period.

6) What am I responsible for?

Generally, the tenant is responsible for maintaining the interior of the premises and returning the premises at the end of the lease in the same order it was given.

7) What is the Landlord responsible for?

Generally, the landlord is responsible for the maintenance of major structural aspects of the building and building systems. They must maintain the common areas of the property if the property is multi-tenanted.

8) Who provides the Compliance Certificates?

a) Electrical certificate

The Occupational Health and Safety Act provides that the landlord must be in possession of a valid electrical compliance certificate at all times. It is, however, not obligatory to obtain a new electrical certificate where no alterations have taken place since the last certificate was issued (provided that it is within the two-year validity period). If the tenant installs anything which alters the electrical layout of the property, a new compliance certificate must be obtained by the tenant, unless otherwise provided in the lease agreement.

b) Water compliance certificate

The Cape Town Water By-Law provides that the landlord of the property must have a valid water compliance certificate. This certificate is valid until/unless changes/alterations are made and is usually renewed each time ownership of property is changed. In the event that the tenant changes or alters the plumbing structure, for example with the installation of new geysers or basins, a new compliance certificate will have to be obtained by the tenant unless otherwise provided for in the lease agreement. It is important to note that this requirement is only applicable to properties that are situated within the jurisdiction of the City of Cape Town Municipality.

c) Gas certificate

Pressure Equipment Regulations promulgated under the Occupational Health and Safety Act states that a new certificate must be obtained with any installation, alteration, or modification. What this means is that for the purposes of leasing, each time a new gas appliance is installed in the property, a new certificate must be obtained.

9) Does the Consumer Protection Act (CPA) apply to Commercial Leases?

The CPA could apply to a commercial lease, where the landlord leases property in the course of its business and where the tenant is a natural person or juristic person with an asset value or annual turnover of less than R2-million per annum. This is usually covered in the lease agreement.

 

The information provided herein is a guideline, ultimately, we strive to reach an agreement between the landlord and the tenant that is fair and clear.  It is advised that the tenant gets their own legal advice before concluding an agreement.

If you are looking for premises, give us a call, we will negotiate the best deal possible for your business.

Jenny 083 307 4867

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