Growthpoint Properties is set to release about R350 million in lease deposits it currently holds over the next five years in what it claims is a groundbreaking move in the global commercial property market.
This follows the listed property company introducing a new deposit-free lease, which means businesses would no longer face the burden of large security deposits when renewing or signing new commercial property leases.
Norbert Sasse, Growthpoint’s chief executive, said that the new “undeposit” was developed over a three-year period and created a “win-win” for Growthpoint’s clients and its investors.
Sasse said Growthpoint was the first publicly traded property company in South Africa, possibly the world, to offer this deposit-free lease, which was based on the excellent creditworthiness of its clients.
He added that the traditional deposit for commercial property worldwide equalled three months rental for premises and associated space, such as parking.
But he said the firm was offering tenants the option to waive this security deposit in favour of a non-refundable fee of between 10 percent and 25 percent of the deposit amount charged, based on the risk profile of each business.
Growthpoint would pool the fees to create a property reinstatement fund and assume the total risk for this security.
As leases were renewed and new leases signed, Growthpoint’s property reinstatement fund would grow, offsetting any risks introduced, he said.
He said most of Growthpoint’s leases were for five years, which meant the fund would be well-established by 2018. He said it would make moving into new premises attractively cheaper for firms leasing with Growthpoint for the first time while it meant a cash flow injection for businesses occupying Growthpoint’s buildings for qualifying clients at lease renewal.