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Case Study – The importance of using a commercial property agent to look after your commercial property

Mr & Mrs Carey own a commercial investment property and a residential investment property. They have both properties managed by the same residential agency to make it ‘easier’ for them to deal with. Recently, an issue occurred in relation to the commercial property, resulting in the client moving their commercial property to our specialised commercial agency.

The primary issue, and catalyst for the move, was in relation to the rental increases not having been applied properly. The property was of a reasonable size, generating several thousand dollars of rental income each month. The problem, in brief, was that the residential agent had been applying CPI increases, but had used the wrong CPI figures to calculate the increase and as a result had overcharged the tenant. In itself, not a huge issue to resolve, but compounded over a longer period and with further increases calculated incorrectly, the adjustment back to the tenant was not insubstantial, creating a hole in the client’s cash flow and creating bad will with the tenant.

Upon our engagement as their new managing agents, we conducted an audit of the file. We found an array of further issues, including in the calculation and recovery of the property outgoings from the tenant, incorrect GST calculations (or no GST charged when it should have been), an expired lease that had not been re-negotiated, and, perhaps most importantly, an expired Bank Guarantee. The last of these items clearly is of crucial importance, as the Bank Guarantee acts as security for the Lessor (rather than a bond) under the lease. The client had been left exposed to this risk without their knowledge.

In our role as the new managing agent, we calculated the necessary adjustments from the outgoings and GST errors and resolved this with the tenant, and we negotiated a new lease with a new Bank Guarantee put in place, resulting in a protected and happy owner and tenant.

There are many implications, beyond the obvious, associated with the above errors by the former residential managing agents.

If you would like to learn more about this, or have a chat about commercial real estate in general please give us a call.

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