Personal Finance

Corporate leasing: In good company

Meera Siva | Updated on September 02, 2018 Published on September 02, 2018

Renting your property to a firm, directly or through a service provider, has its advantages

Rosie, an enthusiastic property buyer, received a panic call from Lousie, who is often embroiled in varied troubles with his real estate. For moral support, Rosie called Housie, a young techie who is objective and goes by facts and not opinions. “What is the problem?” Housie asked. “Trouble with the tenant,” Rosie responded.

Alternative tenant

“I need a different type of tenant,” started Lousie. “Not any new tenant, but someone unlike any of the ones I’ve dealt with,” he said.

“Have you tried corporate leasing?” asked Rosie. “Your tenant would be a company — usually larger names — and you will sign a lease agreement with them. The benefits are on-time rent payment and no hassles in vacating the property after the lease term,” she said. “Unlike lease agreements with individuals, which are for 11 months, the period for corporate leasing is 2-3 years,” Rosie explained.

“Will they also pay a higher rent?” asked Lousie.

“No, the rent may be 10 per cent lower than the market rate. The agreement can include a clause for rent escalation after a year. The lower rent may not be a big loss as the lease is for a longer duration. Also, once the lease expires, the company would likely renew it, and you save on the costs and hassles in finding a new tenant,” Housie said.

“He added that one can find out about companies looking for houses through newspaper advertisements.

Corporate rental

“Many people may vie for company lease, but there are other ways to get corporate tenants,” said Rosie. “For example, you can go for corporate housing service providers. These are agencies that have relationships with companies, and offer housing solutions. Their clients may be, for instance, CA firms that have employees who travel for audits, or any company with travelling sales team members,” she said.

“Is the rent lower with them, too?” asked Lousie. “It can be higher, actually,” said Rosie. “One reason is that they tend to take up multiple houses in a vicinity, for ease of operation. So they are willing to pay 5-10 per cent premium for a property that meets the needs. Some service providers also prefer the owner giving a fully furnished house. They are open to paying 10-25 per cent higher rent for furnished houses over unfurnished ones,” she said.

“And for this premium price — which is still cheaper yet more comfortable than a hotel for employees — the company would expect a high maintenance standard. So you can rest easy that your house will be well maintained, with possibly a full-time house keeper employed by your tenant. Plus, you will not be bothered about plumbing or other annoyances as these service providers take care of such troubles quickly,” said Rosie.

“I know that my company pays 1,500 per night for a room in a four-bedroom house when I visit our office in Bengaluru. All rooms are usually occupied when I visit; you can do the math on the monthly revenue,” Housie said.

“Typically, for cost economics, service providers may prefer apartments or houses with three or more bedrooms for short-term stay as guest houses,” he added.

Different uses

“Another use case is as temporary housing during relocation. It can even be long-term housing for a few months, for, say, consultants who are posted for a project. These may not require housekeeping services such as cooking, and smaller houses may be more suitable for this. Sometimes, luxury houses are taken up for executive stay — short- or long-term,” he said.

“These ideas sound good, but my housing society will not accept letting out the house on short-term rentals as tenants keep changing. And even if they did, my property’s location and type may not make it attractive for corporates. I would think that properties located close to, say, tech parks in cities such as Pune, Chennai and Bengaluru may be desirable,” Lousie said.

Issues to consider

“Also, when you rent it out to service providers, you are affected by the vagaries of their business. For instance, their occupancy rates may be seasonal, and they may be affected by the troubles of their clients. The service provider has many costs besides rent — utility bills, annual maintenance of appliances, employee salary and managing ongoing upkeep. These can eat into their profit and they may delay paying rent”, he said. .

Housie responded: “Still, I think there are benefits to considering this option. You can ask who the service provider’s clients are and the number of rooms or houses they have on rent, to understand their business strength. Pay attention to agreement terms — ensure furnishing and fittings are listed, and there are clauses for fair compensation in case of damages that are beyond normal wear and tear.”

“Yes,” said Lousie. “For regular payment and fewer issues with societies, a direct corporate lease may be better, though the rent may be lower. If your society allows, and you find a service provider with a good client base, this can be good route, especially if you don’t mind occasional payment delays.”

The writer is co-founder, RaNa Investment Advisors.

Published on September 02, 2018

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