Property investors are often faced with the decision on what type of property to invest in and whether to enlist the services of a professional management company.
Investing in real estate is a good way to generate a stable return on investment and often the key to reaching this stable return on investment position is with the help of a professional management company and a knowledgeable property manager.
Most property investors would be aware that property management services cover both residential and commercial property management, but how much do they differ? To decide which property industry to invest in and to be successful, you must first understand how the needs of commercial and residential property management are different.
How the Property and Tenancies are Governed
As you would expect, there is different legislation for different property types. Residential property management is governed mainly by the Residential Tenancies Act 1986 (RTA), The Building Act 2004, The Building Code, Housing Improvements Regulations 1947, and the newly introduced Residential Tenancies (Healthy Homes Standards) Regulations 2019.
Residential tenancies are governed by the RTA and this Act enforces the relationships between the landlord and tenant, unlike a Commercial tenancy, residential tenants have no claim over the property during their tenancy.
Commercial property management is governed by the Property Law Act 2007. Commercial property leases are based on a Deed of Lease and often a lawyer is enlisted to help assist both owner and tenant in the agreement. This deed renders a tenant an estate to the commercial property and in some cases this estate of lease is registered in the title of the land. Due to this, commercial tenancies are often for a longer duration in comparison to residential tenancies. It’s not uncommon for commercial tenancies to go for up to 30 years and during that time the commercial tenant has claim over the property and the property owner cannot without default by the tenant, reoccupy the property. The Property Law Act 2007 governs the relationship between the commercial property owner and the tenant.
It’s important to have a good understanding of all the relevant legislation governing the particular type of property when choosing where to invest.
The Use of The Property
Another difference between Residential and Commercial property is the use of the property. Commercial property tenants are always businesses or people conducting business in them and therefore they have different needs when compared with residential tenants who usually live in the property.
There can be a wide variety of tenants in commercial property depending on the business for example medical, retail, restaurants, office, shopping centres, and industrial services. There may be a vehicle repair service leasing an industrial warehouse, or a surgeon leasing a clinic – both have very different needs. Just like a residential property manager, a commercial property manager needs to have a great understanding of how the property and space functions in order to effectively manage the property and tenants and advise the property owner.
Payments made by tenants
Residential tenants make payments for rent as well as pay for utilities used such as water, electricity, internet and telephone. Property direct expenses such as most maintenance costs, house insurance, rates, and some water fees are the landlord’s responsibility.
Commercial property related expenses can be categorised as Capital Expenses (CAPEX) and Operating Expenses (OPEX). CAPEX such as structural repair work or roofing is almost always the responsibility of the owner, however often under the Deed of Lease, commercial tenants pay the OPEX such as rates, building insurance, cleaning, maintenance and even security costs. OPEX can be collected on a monthly basis based on an annual budget, or charged directly to the tenant depending on which is better for the property.
Sometimes in commercial property management owners and managers need to give consideration to the wider public and the community. Unlike residential owners where they could own standalone housing, commercial property such as shopping centres or properties with a greater public and community involvement need more management from managers or owners in regards to not only looking after the building, but the surrounding space as a whole.
The commercial property management team at Auckland Property Management are highly skilled at managing large public commercial properties and we are proud to say that our team has successfully established funding through community grants and have made a real difference to communities as a whole.
You are in safe hands our Principal, Licensee and Managing Director Howard Morley, alongside Division Manager Anita Menzies. Howard Is a past president of the Real Estate Institute of New Zealand, a Registered Valuer, and an Associate of the Arbitrators and Mediators Institute with over 50 years of real estate industry experience both nationally and internationally. Anita, who has both architectural and law qualification, readily shares her knowledge and experience to best assist our clients.
If you are a commercial property investor and you are in need of help managing your assets, be sure to contact the commercial property division at Auckland Property Management.