1.1 Learning Unit 1
3. Purpose of Commercial Letting management
The law of rent was formulated by David Ricardo[1] around 1809 and presented in its most developed form in his magnum opus, On the Principles of Political Economy and Taxation. This is the origin of the term Ricardian rent. Ricardo's formulation of the law was the first clear exposition of the source and magnitude of rent and is among the most important and firmly established principles of economics.
The rent of a property, therefore, considered as the price paid for the use of the property, is naturally a monopoly price based on supply and demand factors. It is not at all proportioned to what the lessor may have spent upon the improvement of the property or to what he/she can afford to take, but to what the lessee can afford to give.
Leasing, also known as renting, is an agreement where a payment is made for the temporary use of a service or property owned by another for a specified period. A gross lease is when the lessee pays a flat rental amount, and the lessor pays for all property charges regularly incurred by the ownership. Renting can be an example of the sharing economy.
There are many possible reasons for leasing instead of buying, for example:
- In some instances (i.e., commission-based income), lease expenses are tax-deductible. An example of an expense that would qualify for a tax deduction is the space utilised inside the residence for office purposes. This is calculated as a percentage of the floor size of the property. The same percentage ratio can be applied to all utility accounts paid for the property for a tax deduction
- Financial inadequacy, such as leasing an office or commercial property when one is unable to purchase, i.e., "leasing by necessity".
- Reducing financial risk due to depreciation and transaction costs, especially for real estate, which might be needed only for a short amount of time
- Needing a cheaper alternative to buying
- The lessee may want to leave the burden of upkeep of the property (mowing the lawn, cleaning the gutters, etc.) to the lessor or his agents. As per the rental agreement, the lessor is responsible for the external maintenance and upkeep of the property. The lessee is only responsible for interim maintenance damages incurred by the occupants or their clients or guests. This is fully explained in the rental agreement section
- There is no need to worry about the lifespan and maintenance required by the lessor.
- If the desired commercial space is not for sale, one will lease to obtain the right place to conduct business. Location and footage are key to any business setup. The right location for the right price on the right terms can make a business more productive, improve employee recruitment and retention, and make the business more attractive to customers and serves the bottom line from an economic perspective.
It is clear
that the purpose of Commercial Letting management is for the letting agency to facilitate the Commercial letting
of a property on behalf of the lessor. A fully managed Commercial letting
service typically includes:
- Advertising & Marketing
- Photography and Floor Plans
- Lessee viewings
- Credit checks & Lessee Reference checks
- Inventory
- Lease Agreements
- Register tenancy deposit
- Rent collection
- Re-negotiating Lease renewals
- Regular property inspections
- Maintenance handling & co-ordination
- Notice processing
- Final inspection & deposit dispute handling