Philippines Leasing Guidelines
Page 1 of 6 January 2010
Introduction Cushman & Wakefield and our partners have prepared this leasing guideline to assist and help educate our Corporate Clients with their real estate decision-making process. While reviewing the contents of this book, it is important to remember that different regions in different countries have their own culture, real estate practices and policies. We have endeavored to provide the highlights for every major market, but we strongly encourage our clients to contact the local Cushman & Wakefield office or Client Solutions team member if there are any questions or conflicting information within this guide. Cushman & Wakefield have made every effort to make this leasing guide as accurate as possible. Cushman & Wakefield accepts no responsibility if this should prove not to be the case and no warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein. Since this document has been created to be a guide, it should also be understood that every transaction will be different in respect to the terms entered into through negotiations with individual landlords. This leasing guide will be updated on a semi-annual basis. For further information, please contact: Josemari C. Cuervo Cuervo Far East, Inc. 5F S&L Building 101Esteban cor. Dela Rosa Sts. Legaspi Village, Makati City Tel: (632) 750-6608 Fax : (632) 750-6603 Email :
[email protected]
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Lease Terms Rental Payments Service Charges, Repairs and Insurance Taxation Disposal of Lease Measuring Code Legislation Page 3 of 6 January 2010
Typical Lease Length
3 years
Rents Quoted In
Philippine Peso per square meter per month
Typical Break Options
Negotiable with Landlord
Frequency of Rent Payable
Monthly in advance
Rent Deposits (Expressed as X months rent)
3 months rent
Annual Index to Inflation
No
Statutory Right to Renewal
Tenants have to negotiate
Basis of Rent Review
Open Market Value
Typical Annual Escalation
5% to 10%
Rent Free Months
One (1) to three (3) months for fit-out
Internal
Tenant
Common Parts
Landlord
External / Structural
Landlord
Building Insurance
Landlord
Local Property Taxes
Landlord
VAT Payable on Rent
Tenant
Assignment / Sub-letting
Negotiated separately by Tenant
Early Termination
Yes but usually with penalty cost
Tenant’s Building Reinstatement Responsibilities at Lease End
Original condition with reasonable wear and tear.
Measuring Practice
Usually net usable area. Whole floor tenants may be the exception wherein gross areas are the usual measuring practice.
Legislation Relating to Lease Contracts
None
Prospective Changes to Legislation
None
Rental Rates and Costs How are rents quoted and paid? Rents are quoted in Philippine Pesos per square meter per month and are paid in advance. Is a security deposit required? A cash security deposit is required and is usually equivalent to 3 months rent. The deposit is then refunded back to the Tenant interest-free after all internal expenses have been cleared. What is typically included in the rent? The rent includes the usage of office and common space. Additional rental is charged for parking slots; air-conditioning and utilities are billed separately. What does the service charge cover? Service charges or monthly dues, as they are commonly called, usually includes security, maintenance and utility expenses for the common areas and base building systems. Who pays for the brokerage fee and what is the typical fee? Landlords usually pay for the brokerage fees equivalent to one (1) months face rent but this may vary on market conditions. It is unusual for Landlords to pay for rent renewals or rent review. Do landlords provide any incentives? Landlords usually provide a rent-free period as an incentive. Floor Space What measurement standards are used? Measurement standards may vary from building to building but the most common standard is the net usable area. Gross areas are usually used as a standard for whole floor tenants. Efficiency may be anywhere from 70 to 95%. Lease Terms What sort of contract is used? A formal lease contract is signed in English. Landlords usually supply their own versions of lease contracts and are not necessarily supplied from legal offices. Long term lease contracts do not have to be registered in the local government office. What is the typical lease term? Three (3) year lease terms are usual. Are rent reviews common? No, rent reviews are only common for lease terms over six (6) years. Do tenants have automatic renewal rights? Tenants usually have the first option to renew their lease at a mutually agreed rate, terms and conditions. Rates usually follow open market rates. Page 4 of 6 January 2010
Do tenants have automatic sublet or assignment rights? No. Subletting rights have to be negotiated with the Landlord. Landlords do not usually agree to sublet leased premises except for lessee affiliates, subsidiaries, or in case of mergers. What is required at the commencement of the lease and what costs are associated with it? Landlords usually require rental advance payments, security deposits, vetting fees and construction bond for fit-out. Rental advance payments and security deposits may vary but are usually equivalent to three (3) months respectively. What kind of expansion options for growth of space can a tenant typically negotiate? Landlords may be willing to grant rights of first refusal for premises within the same floor or contiguous floors above or below the leased premises. However, Landlords do not give these rights over long periods. Six (6) months to one (1) year is usual. Is it possible to terminate leases? What is the process and are there penalties? Yes if it is negotiated in the lease agreement. Tenants will have to send notice to pre-termination usually 90 days prior and a penalty is due to the Landlord usually through the forfeiture of the security deposit plus additional three (3) to six (6) months penalty. At the conclusion of a lease term, what is the process for handing back the space? The Tenant is responsible to turnover the premises in the same condition as it was at the commencement of the term, subject to normal wear and tear. However, it is usual if the premises were leased to the Tenant bare of improvements that the Tenant is required to retain all hard improvements such as the ceiling, walls and fixed partitions back to the Landlord. Inventory checks are also usually done prior to turning back the unit to the Landlord. Tenant Improvements & Fit Outs Are offices leased out in fitted condition? Grade-A office buildings are usually turned over bare, although there are a number of developers who lease out their premises fitted in a warm shell condition. i.e. acoustic ceiling, lighting, sprinkler systems and basic air-conditioning systems. What tenant improvement allowance is provided by the Landlord? Some landlords offer ceiling and primed walls. If the unit has been previously tenanted, landlords normally put a fresh coat of paint on the walls and fix the ceiling of any damage. Does the tenant have the right to make improvements? Yes. Plans have to be approved by the Landlord and building management before work begins. How much time is needed for a typical fitout? This is a variable depending on the area being fitted out and the complexity of the fit out. A 1,000 square meter office space would require usually 60 days from design to construction. Again this may go further depending on the complexity of design. What is required with respect to Landlord approvals and fitout fees? Landlords usually require a payment of vetting fees for the review and approval of all built plans (design, electrical, plumbing etc.) with the accredited engineering consultants for the building. The tenant is then required to deposit a construction bond that is refunded back (interest free) once the fit out has been completed. The construction bond is used to insure against any damage on the common area. Page 5 of 6 January 2010
Are permits required? Yes. Usually the architect or interior designer will have to apply for all the necessary permits first from the building management and from the local government as well. Renovations are not exempted from these permits. How is design/construction work managed? There are a number of qualified architects or interior designers in Manila. Fit outs may be completed on a design-build basis if Tenant wishes to do it himself; or by bidding the construction out to different contractors. It is suggested that independent contractors and project management services be engaged. Is the construction force unionized? No. Is there a shortage of any construction item or any items that aren’t available? No. Manila has a vast resource of construction materials. Lead times only exist for imported modular office partitions and systems. Fit Out Costs What is the typical cost for fitout, basic telecom/ cabling, furniture, etc. for an international firm? Costs may vary depending on the design, finish, IT requirement, cabling, construction schedule, etc. Usually the following prices may be anticipated. Item
PhP / sq.m. 1 Low Med. High 2,300 4,375 6,450 13,500 29,310 45,120 6,300 9,500 12,700
Low 4.64 27.22 12.70
US$ / sf Med. 8.72 59.10 19.60
High 13.01 90.98 25.61
51,570
44.56
87.42
129.60
Furniture 2 (System & Loose) Made Locally 6,500 8,200 15,000 Imported 8,300 15,000 19,500 1 $1.00 USD = PhP46 (January 2007) 2 Based on a typical office configuration of 1,000 sq.m.
12.08 15.42
15.23 27.87
27.87 36.23
Consultants General Construction Mechanical & Electrical Works Sub-total
22,100
43,185
Building Systems What is the electrical power? 1440 volts, 3 phase, at 60 hertz stepped down for tenants to 240 volts, 3 phase, 60 hertz. What is the typical power provision? Normal Tenant power provision is 60VA/m2 but other buildings give a higher provision especially for IT Buildings which offer up to 100 VA/m2.
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What is the typical floor size and ceiling height? Floor sizes may vary from building to building in Manila. Grade-A office buildings have floor areas of 1,000 sq.m. to 2,000 sq.m. While lower grade office buildings often range from 500 sq.m. to 900 sq.m. Ceiling heights also vary but Grade-A offices have ceiling heights of 2.65 to 2.85 m. with raised flooring and 2.40 m for lower grade office buildings and those without raised flooring. What is the typical HVAC system? The typical HVAC system is provided by chilled water distributed to Air Handling Units (AHUs) from the cooling towers or chillers. What is the typical Emergency Power provision? Landlords usually provide only emergency power for the common areas such as hallway lights, lifts and building management systems. Some buildings offer limited emergency power to the Tenants. Grade-A buildings offer 100% emergency power back up. Is there Broadband or high-speed connectivity in most buildings? Yes, in most grade-A buildings. What is the process for securing telephone lines? Since the Telecom Liberalization, many other Telecom Companies besides PLDT offer end-to-end solutions at very competitive rates. Moreover, Lines can be secured in a matter of days. Legal System What is the legal system like? How are disputes resolved? The legal system is based primarily on the Philippine Legal system with local case laws and statutes. The judiciary is generally perceived as fair. Disputes are resolved either by arbitration in accordance with domestic and international rules of arbitration or through judicial courts. Final appeals on court decisions are decided in the Philippine Supreme Court. Other Who is the typical landlord, for example, a large institution, insurance firm, individual, etc? Typical landlords are usually local developers such as Ayala Land, Megaworld Corporation, and Filinvest Land. Banking institutions such as RCBC, Pbcom, Unionbank, and insurance firms like Philamlife and Insular Life also have developed and lease out Grade-A Buildings. Are multinational firms clustered in certain areas? Banks and image-conscious corporations usually concentrate in Makati CBD. While other companies may find Grade-A offices in other business districts such as Ortigas Center, and Bonifacio Global City as alternative locations where the rents are more competitive. What is the typical mode of transportation? Transportation is readily available within and around the major business districts (Makati CBD, Ortigas Center, Bonifacio Global City, Filinvest Corporate, etc.). Buses, taxi’s, jeepneys, shuttle services, including the rail systems such as the (MRT) Metro Rail Transit, and the (LRT) Light Rail Transit, all offer efficient and convenient options. Do you recommend buying or leasing office space? We recommend leasing for several reasons. Leasing a property instead of buying allows room for flexibility in terms size and location of premises. Page 7 of 6 January 2010
What types of facilities do firms typically occupy? For example, high rise buildings or campus/low rise buildings? Firms occupy different types of buildings depending on their needs, for traditional head-offices, they usually occupy high-rise buildings whereas for operational purposes, they occupy low-rise or campus type buildings. Is business conducted in English or another language? Business is conducted in English. This report contains information available to the public and has been relied upon by Cushman & Wakefield on the basis that it is accurate and complete. Cushman & Wakefield accepts no responsibility if this should prove not to be the case. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals.
Copyright © 2003 Cushman & Wakefield (HK) Limited All Rights Reserved Company Licence No. C-002429
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