Clinic rents are usually advertised as a dollar-per-square-metre figure. This can be advertised per annum or per month and is typically exclusive of GST. For example, say a 50sqm Physiotherapy shop-front style practice is advertised at $65 per square metre per month. The annual cost to rent excluding GST would be: $65 x 50 x 12 = $39,000. GST can be calculated by adding 10% to the rental figure. Therefore, the annual rent inclusive of GST would be: $39,000 x (1.1) = $42,900.
Gross rents are an all-inclusive figure that include all building outgoings. Under a net lease, outgoings are separated from the outset and clearly outlined as an additional cost to the tenant. Sometimes only a percentage of total outgoings is applicable, particularly if the clinic space is part of a shopping centre or commercial precinct. The shared outgoings are calculated based on your space as a percentage of the total space.
Outgoings, which are passed onto a tenant, generally include:
• Council Rates
• Water Rates
• Building Insurance
• Repairs, Maintenance & Cleaning Costs (excluding capital costs but includes things like scheduled air conditioner servicing)
• Management Fees (including Body Corporate & Strata Levies)
• Land Tax (this varies, some landlords charge this, some don’t)
Incentives are typically applied in addition to gross rent, and can comprise a rent-free period, a fit-out contribution, or a combination of such incentives. This is more common when you lease a new clinic space that was previously vacant. When you buy a clinic, an existing lease will most likely be in place which will be assigned to the new owner. Either way, the lease is finalised by negotiation between the landlord and the clinic buyer.
Commercial lease rates per square metre in Sydney are the highest in Australia (followed by Melbourne, Brisbane, etc.). The same applies to a clinic space.
What is Fair Market Rent for the Clinic I have just Purchased?
There are many variables to consider when it comes to a commercial clinic property price per square metre and determining if you are paying too much rent for the clinic you intend to buy.
Ensure you allow enough time to research the right deal for your practice, especially if you are entering into a new lease with the landlord and not just an assignment of the lease.
Compare similar rents in the area relative to size, location and fit out features. If a commercial space requires major fit-out works before it can start producing income you need to factor in how long it will take to re-coup those costs from trading profits.
As a lessee you want to keep your fit-out costs to a minimum (if any) as it’s the landlord that ends up reaping the rewards with your fit-out increasing their freehold value.
It is always recommended that you familiarise yourself with the complex terms & wording of commercial leasing or seek professional assistance through a solicitor.
Buying vs Leasing Your Clinic Premises when Buying Your Clinic.
When buying the goodwill and equipment of a clinic sometimes the seller also owns the clinic building. In this case, there may be an option to either lease or buy the clinic building. On occasion, the clinic premises must be sold with the goodwill and equipment leaving you with no choice but to purchase the clinic premises if you really want that practice badly.
Benefits of Leasing the Clinic Premises are:
• Ability to expand and contract your clinic. If things go well in the future, you can relocate to a bigger and better location nearby. On the other hand, you can also downsize into a smaller space during an unexpected downturn
• More freedom to take advantage of good leasing opportunities when they arise at a cheaper rate
• Less equity and cash tied up in your clinic
Benefits of Buying the Clinic Premises are:
• It is your property and you can change it as you see fit
• Management decisions are your responsibility
• You can receive rental income through the sub-lease of any vacant or unutilised treatment space increasing business profitability (this can also be an option if you lease your clinic space. However, some landlords are not agreeable to sub-letting as part of their lease terms & conditions. So, if sub-leasing is part of your business plan it’s always good to check your lease terms to ensure it’s not excluded)
• Capital growth potential
• Tax advantages
On the flipside; if you are looking to sell your clinic and also own the clinic space (and are open to either leasing or selling the freehold), it is best to give the prospective buyers the option to either lease or buy as this will attract a bigger buyer pool.
If you would like more advice when it comes to leasing or buying a clinic, or if you are looking to sell your clinic, please do not hesitate to contact us at Healthcare Practice Sales. We sell a wide variety of practices including Physiotherapy Clinics, Chiropractic Clinics, Podiatry Clinics, Psychology Clinics, GP Practices, Occupational Therapy Clinics, Multidisciplinary clinics & more. Selling healthcare clinics is our area of expertise.