Are you considering leasing commercial premises in New South Wales. Commercial leasing can be a minefield. Therefore, it is crucial that the lease documentation be correct from the outset to avoid, or at the very least limit, any disputes that may arise during the term (including any option terms) of the Lease.

Many issues can be avoided by having a lawyer prepare the lease (in the case of a lessor) or having a leasing lawyer look over the documents before you sign them (in the case of a lessee).

Equally important from the lessor’s perspective, is the real estate agent’s role in screening potential tenants, conducting the negotiation process and finally, the management of the property.

Checklist for Commercial Leases (Non Retail)

When negotiating a commercial lease it is important to consider the following:

  • Agree on the following terms, preferably evidenced by a “term sheet” or “Heads of Agreement” signed by both parties, including (but not limited to):
    • the term of the Lease and whether there will be a lease option (or options) on top of the original term and the method for exercising those options;
    • the rental amount payable, the frequency of the payment (weekly or monthly);
    • a method to provide for how the rental will increase on each review date under the lease and by which method. For example, will the lease increase each year on its anniversary by way of either a fixed price increase (usually expressed by way of a percentage), review to market or the Consumer Price Index (CPI);
    • the commencement date of the lease;
    • the Outgoings payable by the Tenant; and
    • any other special conditions such as works to be carried out by the Lessor.
  • What will the lease security be? For example, guarantees from the directors of the Tenant (if appropriate) and a bank guarantee or cash deposit to the value of at least three (3) months rent.
  • Determine who is responsible for the fit out of the premises and who will own the fit out at the end of the lease. Matters such as the make good of the premises at the end of the lease and periodic decorating, such as re-painting during the course of the lease and/ or lease options should be agreed between the parties;
  • Determine the maintenance requirements for each party during the lease. For example, the Landlord may need to maintain common areas and lifts. The Tenant may need to maintain the premises day to day. Large items (capital replacement) such as air conditioner repair and maintenance should also be agreed upon.
  • Obtaining the consent of the Landlord’s mortgagee for the Lease. In New South Wales, a lease over three (3) years in length must be registered with New South Wales Land and Property Information. Registration will be dependent on the mortgagees consent, which invariably attracts a fee.
  • Understanding the procedures in place to assign the lease and what the Landlord will require to give consent to any such assignment if this arises during the lease term.
  • Determining which insurances are required and obtaining / providing evidence of such insurance.

Commercial leases are usually complicated documents prepared by the Landlord’s lawyer. It is common that the Tenant pays the Lease preparation fees in addition to their own legal fees, though this is not always the case and the preparation fees should also be negotiated along with the lease terms.

Whether you are a landlord or tenant entering into a commercial lease you will need advice from a legal expert to ensure that your rights and obligations are adequately taken care of.

Conclusion

Call our office on 1300 544 755 for assistance. Our leasing lawyers have assisted in matters in every state of Australia so are well acquainted with the unique legislation that operates within each State.

 

Emma Heuston

Next Steps

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