When your property is located outside of the US, different countries have different leasing conventions.
May 5, 2014 (Newswire.com) - In addition to the language barrier, there are different leasing conventions which vary from country to country that can complicate a managers' ability to evaluate them equally. The regulations for reporting cash flow line items, such as leasing fees, interest income on security deposits or improvements by tenants, vary widely by location and must be accounted for in financial reporting. Todd Tretsky, of CRE-Finance LLC sees the global trend and Tretsky wants to share some of the variances in the lease structuring from around the world.
For example, in many parts of the Japan, it remains common practice for tenants to pay a non-refundable key money deposit in order to secure a lease. This payment is generally equal to one to two month's rent, and may be paid up-front or spread over the lease term.
In the United Kingdom and Australia, mid-lease rent reviews present property owners an opportunity to adjust their tenants' lease rate based on changing market conditions, which can result in significantly higher long-term rent return projections, if the market is moving upward. These reviews can also be structured as upward-only to prevent a downward rent adjustment.
For properties in Germany and Australia, complicated rent indexation measures, such as the older step up indexation method, can impact market data and make comparisons more complicated. Also, value added taxes, in place in various countries, create additional line items during property purchases and resales, and vary from country to country.
Other examples of variances for which portfolio managers must account for are the varying conventions in which fixed service charges are treated in relation to operating expenses. While they are generally passed on to tenants on a net pro-rata basis or above an expense stop in the United States, their handling differs elsewhere.
If you have any questions regarding commercial real estate or are seeking financing, please reach out to Richard Tretsky or Todd Tretsky at 855-515-5585 or visit us on the web at www.cre-finance.com.