Are you being offered a fitout contribution?
Some of our valued clients say; “We appreciate you calling and we love what you do, but we haven’t signed the heads of agreement yet. As soon as we do, we’ll give you guys a call and get you to go through the tenancy. We don’t want to waste your time before we sign anything.”
While this is very thoughtful, we are able to help you at the start with the heads of agreement & the lease. Lawyers and accountants we’re not, but we do know the poison pills that can go into a lease that can significantly add cost to you for your project.
During the process, we often get sent the draft leases & often come across where the landlord is offering a fitout contribution.
For example, the landlord is offering to give $600,000 dollars towards their fitout, which sounds great at the time. They then sign the lease and afterwards realise that the $600,000 is an allowance conditional on using the landlord’s chosen suppliers, which can then charge whatever prices they want, as there are no competitors that the landlord will allow.
How much they really giving you?
Often in these leases, there are uncompetitive restrictive clauses and an incredible assignment of rights where the landlord is able to appoint, at the cost of the tenant and without restraint, an independent architectural consultant to assess all the works and engage whatever engineers to assess and validate the project once complete.
They do this even though the project has already been validated and engineering has been signed off by our qualified surveyors and relevant engineers.
Another catch of a lease is where the landlord says; “We’re going to give you $600,000 towards your fitout. How this will be paid is you have to give an invoice to us for $600,000 + GST”.
This gives the landlord full control of the asset, allowing them to claim the GST of $60,000 and to start depreciating say 10% a year, which they can save off their tax.
However, the $600,000 to the client gets paid in equal instalments over 62 months, $10,000 a month for five years. This means you as the client has had to fund the $660,000 (including the GST) and then only get payments back at $10,000 a month for the next 62 months.
What seemed like an awesome fitout contribution giving the client a moving cost of 0 to relocate is actually a series of delusions. They have to fund $660,000 upfront and then only get paid back at $10,000 a month.
How do you go about resolving this issue?
It is simple to resolve these issues, assuming that they’re being fair and reasonable. For example, you could ask to take that $600,000 as a full rent reduction or half rent for the first two years.
We have a lot of strategies to help you get the most financial benefit from the landlord contributions.
Landlord contributions can be a win-win scenario, but it isn’t always offered that way in the beginning. It’s critical to tread carefully and understand exactly where you sit in the agreement.
The heads of agreement must be nailed from the start, so there are no poison pills in the final lease.
We love to help you with this. We can help you cut to the chase so you can get the wording right, enabling you to progress quickly through the process of the lease, so you can move in and start excelling in your new space!
Looking for more information on how best to approach a landlord fitout contribution for your business?
Get in touch with Team ICON today on 1300 764 151 – or send us an email.
Other videos in this series you may be interested in:
How can I actually save tax pre-June 30 with an office renovation?