Advice and Opinion

Landlords need to look at their lease contracts, taking into account accelerating operational costs

An increasing number of commercial landlords are being placed under severe pressure with the continual increase in rates and taxes, as well as utility bills from councils, which, in some cases, have risen by as much as 300% over the last year.

This is according to Org Geldenhuys, managing director of property management and development company, Abacus DIVISIONS, who said it is now becoming impossible to include “blanket inflation linked annual escalations” for council bills when signing deals with tenants, as was the norm with many commercial leases in the industry to date.

“With the ever-increasing bills which seem to be coming from municipalities around the country, including in Tshwane, landlords can no longer shoulder these costs – in some cases, these costs could actually be the difference between make or break of a property investment.

“Having an inflation linked or blanket annual escalation for utility bills included in rental contracts is no longer workable. The contract must allow for council increases that go beyond inflationary increases. At a certain pre-determined point these increases must be passed onto tenants.” The preferred way of dealing with this from a landlord’s perspective is to charge operating costs such as rates and taxes, electricity and, electricity andwater usage to the tenant at actual cost rather than at a rate per square meter with a pre-determined escalation. Geldenhuys said that in some instances the Tshwane Metropolitan Municipality had increased some of Abacus DIVISONS clients’ utility charges by as much as 300%.

“Naturally, this is totally crazy and it is no longer possible for landlords to absorb these increases. And this is not just a temporary scenario. Just the current increases from Eskom – which are tabled for the next few years – are back-breaking for business at large. Electricity and other operating costs are having a profound impact on a company’s costs. In some cases, it is causing companies to go broke.”

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