In Short
- Rent costs for florists typically account for 7.7% of revenue, and lease terms usually last a minimum of three years.
- Ensure your lease clearly states the start and end dates to avoid paying rent before generating income.
- Rent reviews should occur no more than every two years and should be clearly defined.
Tips for Businesses
When negotiating a lease, be mindful of potential clauses like the ‘ratchet clause,’ which prevents rent from decreasing. Ensure you understand your obligations when vacating the premises, including leaving the property clean and returning keys, to avoid additional costs and maintain a good relationship with your landlord.
Despite the intense online competition, the flower retailing industry continues to blossom, with many florists opening new stores. Presently, over 2,500 flower retail businesses are operating in Australia. Driven by changes in consumer spending, demand has surged, and this trend is expected to persist, leading to market growth in the coming years. If you are considering opening or expanding a florist business, understanding the legal aspects of commercial leases is crucial. A well-drafted lease can safeguard your business, while a poorly constructed one may cause ongoing issues. This article explores the key legal considerations surrounding leases and rent reviews.
Commercial Leases for Florist Businesses
On average, rent costs account for approximately 7.7% of revenue in Australia. The landlord or property owner will dictate the duration of the commercial lease term. The shortest term of your lease will likely be three years, as this is the general practice in today’s market. Therefore, before you begin negotiations with an owner of a commercial property, you should have a length of time firmly set in your mind. This will give you a stronger negotiating position.
It is essential that your commercial lease specifies both the commencement and termination dates. Some leases start on a fixed date, while others begin when you occupy the property. Ambiguity in this area can lead to paying rent before generating any income. Similarly, the termination date should be just as clear. This is especially important if the lease includes a renewal option, which should be negotiated and agreed upon by both parties.
Rent Review in Flower Retailing
Florists often operate in high-traffic areas like shopping centres and busy streets, where visibility to potential customers is key. Retailers compete for these prime spots, so keeping track of your rent review dates is important to maintain a good location. Rent reviews are standard in commercial leases and should not cause concern. Before signing a lease, ensure rent reviews occur no more frequently than every two years unless tied to an objective measure like the Consumer Price Index.
Also, your commercial lease could include a ‘ratchet clause’ that states that the rent cannot be decreased by the original amount. Unless you feel that the rent should decrease, then this is not normally standard business practice and should be negotiated out of the lease
Continue reading this article below the formYielding Up the Premises
When your lease expires, you will have certain obligations to fulfil before vacating the premises. These should be outlined in the lease and may include:
- leaving the property clean;
- removing personal items and any fit-out works;
- returning keys or access devices; and
- addressing any necessary repairs or maintenance.
Sometimes, the landlord may want or be required to restore the premises to its original condition. This could be done through an agreed payment or by the landlord charging you for the restoration cost. Understanding your options for “making good” the premises is important to avoid legal issues and maintain a good relationship with the landlord.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
Key Takeaways
Navigating the legal aspects of a commercial lease is crucial for florists and flower retailers to ensure the success of their business. A well-negotiated and clearly drafted lease will protect your business and provide flexibility for growth. As the demand for flowers continues to rise in Australia, having a strong grasp of your lease terms will position your florist business for long-term success in this competitive market.
If you need help understanding your commercial lease as a florist, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 1300 544 755 or visit our membership page.
Frequently Asked Questions
Even beyond florists, it is important to have a clear lease duration in mind before negotiating, as this strengthens your position. Ensure the lease specifies both the commencement and termination dates.
Ambiguity in the lease start date could lead to paying rent before you generate any income. Similarly, a clear termination date is important, especially if the lease includes a renewal option.
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