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Brief Article Of Interest - Leases - Getting The Rent Right ( 19/07/2007 )
When considering putting a lease into place over a motel for the first
time it is important to commence the lease with a rental figure that
is as high as commercially possible, yet not too onerous on the
Lessee. This balance is very important to the success of the business
and the property. If the rent is too low then the property owner
cannot maximise the value of the investment. If the rent is too high,
the Lessee falls behind and the business suffers. The happy medium is
obviously a figure that works for both parties, but how do we arrive
at this figure.
There are a number of methods that are used in the market place to
determine a correct rental figure for a motel. These methods must
take into account the Turnover, Gross Profit, Expenses, and Net Profit
of the business. Within these figures the Income sources of the
business will be taken into account, such as the percentage of total
income taken from either accommodation, food and beverage, or
conferences, etc. It must also take into account the level of
maintenance required to the property, age of the buildings, and time
since the last major refurbishment.
It has been widely accepted within the motel industry over the past 10
- 15 years that commencing motel rentals should be no higher than 45%
of the total net profit of the business. There are other methods that
consider a percentage of the total sales of the business as the most
suitable to determine commencing rent. In the end it comes down to
what either party finds as an acceptable rental and believes they can
work with, from both the property and business’ point of view. One
thing is for sure, if it does not suit the Lessee or the Lessor, it
does not make for a good working relationship between the two.
For more information on the above, feel free to contact Andrew Morgan
on 07 4953 1611 or email andrew@qthb.com.au
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