Economics of Commercial Leasing – Not Just a Legal Issue

In commercial leasing practice the structuring of the deal may involve fit out incentives, plus other add on benefits that may sweeten the deal. This may create a difference between the “face rent” on the lease and the “effective” rent that underlies the transaction. That is why it is a good idea to get your lease checked by an accountant and a valuer. The economics of commercial leasing present many challenges for the unwary.

This paper discusses:

  • The broad range of rental concepts including “face” and “effective” rent
  • Market Rent (Effective Rent) as envisaged by Retail Shop Leases Act 1994
  • Understanding the underlying costs of a commercial leasing transaction
  • Understanding the accounting issues when incentives are provided to enter a lease
  • Understanding the commercial implications of a market rent review clause
  • Working out the market rent and obtaining valuations