Commercial Leasing - Know what you are signing up for!

What types of commercial property is available for lease?

The leasing of commercial property includes office space, retail shops (including those within a shopping centre), industrial units, workshops, warehouses, and other non-residential property.

What is involved in leasing a commercial property?

Committing to a commercial lease is not only a potentially significant long term financial commitment but a legal agreement that contains detailed and onerous clauses binding all parties to its terms and conditions.

As leases often run for many years it is crucial the appropriate documentation is prepared and reviewed from the very beginning. It is prudent to obtain the appropriate legal advice before signing a lease so you understand your rights and obligations.

Before you sign the lease

Here are just a few points for you to consider before signing up to a lease;

• Before you get too caught up in the excitement of securing new business premises make sure the landlord has the necessary council approvals to conduct your type of business. You don’t want to be caught paying for space you can’t utilise as intended!
• Limitations on the permitted use of the premises may also be problematic if, as the tenant, you want to sell your business and assign the lease to another person, or vacate the premises before the lease expiration date. By negotiating a broader permitted use you may be able to protect your future business interests.
• If you are a start-up business you may prefer a shorter initial term of stay of perhaps 12 months rather than locking yourself into a long term contract. This will provide a level of security in the knowledge that if your business is not successful you can exit without continuing financial commitment.
  An option to renew the lease for a further 2-3 years after the first 12 months gives the flexibility of securing the premises should business growth be strong.
  In any case you want to ensure the duration of the lease is long enough that you can recoup your investment
• Ensure to take note of not only how much rent is payable but also how increases in rent are to be calculated
• In addition to the rental cost there may be other operating expenses of the premises (outgoings) that are required to be paid by the tenant. These may include council and water rates, repairs and maintenance, security costs and land tax. It is important to be aware of what you are liable for as a tenant. Don’t be afraid to negotiate where possible!
• As part of the lease you may be required to take out insurance to cover things like damage to the building and public liability. Care should be taken to avoid any indemnity clauses that require you to compensate the landlord in the event of any loss, damage or unlawful act as these may be in breach of your actual insurance policy.
• As a tenant you may want or need to prepare the premises before occupation or make improvements through-out your tenancy. These ‘fit-out’ costs can be quite significant so it’s important to know what is permitted and who is going to foot the bill. Such costs can include installation of a shop front, wall and floor coverings, and general fixtures and fittings. Again don’t be afraid to negotiate to try have such items remain your property at the end of the lease where practical.
• If you are leasing retail space in a shopping centre or precinct ideally the neighbouring businesses should compliment rather than compete with your own. It might be worth inquiring about an ‘exclusivity of trade’ clause in your lease prohibiting direct competition in the space controlled by the same landlord.
• If you are attracted to particular premises because there is a significant tenant in the area (such as a supermarket) you may be able to negotiate a right to terminate clause or receive a rent reduction if that tenant leaves.
• You could be in default or breach of your lease if you don’t pay your rent on time or do not undertake certain requirements like repairing or maintaining the premises. This could allow the landlord to pursue rent recovery action or lock-out measures. Be sure to review any clauses on this front so you are provided with written notice and given sufficient time to rectify any default or breach before any action is taken against you.

Do you have questions involving the leasing of commercial premises? Our team at BLG Business Advisers can assist you. Get in touch with us online or by calling (02) 4229 2211.

*This information is relevant at the time of publishing and is subject to change*