Signing a retail or commercial lease is an important time for business owners. However, you should be wary of signing your lease without obtaining professional advice. A lease is a legally binding contract and failure to comply with it could have far-reaching consequences. This article will explain the different types of professional advice that every business owner and potential tenant should get before signing a commercial or retail lease.
A leasing lawyer can advise you on the key clauses of your lease that you should be aware of before signing. They can also advise you on which clauses you should negotiate or remove from the lease. These key clauses relate to various aspects including the:
- term. How long the lease will run for (e.g. three years with an option to renew for three years);
- rent. How much money you have to pay to the landlord (e.g. rent and outgoings);
- permitted use. How you can use the premises and whether a personal guarantee is required (i.e. the business owner personally guarantees that their company will comply with the lease);
- maintenance obligations. What repairs you will need to do (i.e. structural repairs should be the responsibility of the landlord);
- insurance requirements. What insurance policies do you need (e.g. public liability, plate glass, property, workers compensation or business interruption);
- assignment of lease. Whether you can transfer the lease (e.g. assignment or sub-leasing); and
- make good requirements. How you need to return the premises to the landlord when the lease comes to an end (i.e. make good obligations).
If you are entering into a retail lease in Queensland, legal advice is not just recommended. It is a legal requirement. The law requires that a tenant with less than five retail shops in Australia must provide a ‘legal advice report’ to their landlord. A lawyer must sign this report and state that the lawyer has given the prospective tenant legal advice about the terms and conditions of the lease and disclosure statement. However, every state and territory has different leasing laws for both retail and commercial leases.
Your lawyer can also advise you on what insurance policies you must obtain and keep up-to-date during your lease. However, it is important to keep in mind that the policies in the lease are only those that the landlord requires. There may be other policies that you need in order to protect your business. This is where an insurance broker is useful. The broker can provide you with advice on what these additional policies are.
The lease will also specify the requirements of the insurance policies. These requirements usually include that the:
- landlord is listed as an interested party or jointly named on the policy;
- policy will not lapse unless you give the landlord prior notice; and
- policy (typically public liability) extends to common areas of the building.
Your insurance broker can advise you on whether your insurance policies comply with these requirements. In addition, they can provide you with certificates of currency which are required before you can access the premises and throughout the lease.
An accountant or financial advisor can also advise you on whether you can meet your financial obligations under the lease. For example, is your business making enough money to pay the rent when it is due and when the rent increases each year? What about other costs such as outgoings and insurance? Can you afford to refurbish the premises during the lease if necessary?
Other key areas that you should seek accounting or financial advice about include:
- structuring. Whether to enter into the lease in your personal name or as a company;
- personal guarantees. Whether to provide a personal guarantee from the company director or directors and if so, how to minimise their personal liability;
- security. Whether you can afford to provide additional security to the landlord by way of a bank guarantee or security deposit;
- tax. How to lower the value of your property or fit-out in the premises; and
- stamp duty. Whether you need to pay any stamp duty for entering into the lease.
If you are entering into a retail lease in Queensland, you will also need to provide a financial advice report to the landlord. A qualified accountant must complete this report. The accountant must advise you about the following obligations:
- rent, outgoings and other payments that you are liable for;
- the financial impact of the rent review provisions; and
- the restriction of the operation of your business by the term of the lease.
In some cases, your accountant will also recommend that you seek additional assistance and advice about the:
- necessary volume or sales to meet all of your costs of carrying on the business;
- accounting and financial reporting systems;
- cash flow forecasting;
- sales budget forecasting; and
- taxation requirements.
Most retail or commercial leases will state that it is your responsibility to confirm that the premises are suitable for your business. Most leases will also state whether there are any restrictions on your trading hours. In addition to this, it will be a requirement to:
- confirm whether the premises are zoned correctly for your business with the local council;
- obtain any necessary consent or approval such as a Complying Development Certificate or Development Approval;
- provide a copy of this consent or approval to the landlord.
For these reasons, we recommend that before entering into a lease, you seek the advice of a:
- duty planner;
- private certifier; or
- planning lawyer.
Otherwise, you could be locked into the lease and be unable to use the premises to run your business.
If the planning advice you receive says that consent or approval is required, you should consider making the lease conditional upon obtaining that consent or approval within a certain time frame. That way, you will be able to terminate the lease early if you are unable to obtain the consent or approval in time. Your lawyer can request this condition as part of their negotiation of the lease, if necessary.
It is important to not only obtain legal advice before entering into a retail or commercial lease but insurance, financial and planning advice as well. However, in Queensland, it is a legal requirement to obtain legal and financial advice. This advice is invaluable to ensuring your premises and lease are suitable for your business. If you require legal advice about your lease, you can contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page. Our team can also provide you with referrals to an insurance broker, accountant and duty planner, private certifier or planning lawyer.
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