If you own a business or are starting a business, leasing premises is a major investment decision and one that requires careful consideration and planning. Lease negotiations can be complex and, when you consider that your premises lease is one of the most important (if not the most important) business asset, it is crucial you go into the negotiation process with your eyes open.
Expert legal advice will ensure that your needs and your rights are taken into account during a lease negotiation and that you reach a good deal for your business.
This is crucial not only for the immediate conduct of your business but also to provide your business with increased marketability if you wish to sell your business and/or assign your lease in the future.
Negotiation – Key Commercial Points
The following are specific key issues to consider when negotiating your lease:
- Does the Premises location and size meet your requirements?
- Are you able to run the business from the Premises? That is, can you obtain:
- any relevant licences (such as a liquor licence); and
- the relevant approvals from Council
- Will the Landlord fix items/provide fitout or provide warranties as to the Premises before the lease commences?
- Will the Landlord provide you with lease incentives in the form of a rent free period and/or a lease incentive payment?
- Is the Landlord considering any relocation or demolition clauses? These can mean your lease term is not secure. If these clauses are required by the Landlord, ensure adequate compensation to the lessee is provided in the Lease in case the Landlord relies upon them;
- Does retail lease legislation or other legislation apply to the Premises?
- What is the rent?
- What is the rent review mechanism? Is it CPI, fixed increase or market review?
- What are the outgoings you will need to pay?
- How much will the outgoings likely increase during the Lease?
- What is the commencement date?
- What is the term of the lease?
- What is the permitted use of the premises?
- Can you assign the lease, or sub-lease part of the premises?
- Is there a lease option or options to renew your term?
- What are the maintenance provisions in the lease? Are you required to maintain the premises and or air conditioner?
- What are the make good provisions in the Lease? Will you be required to de-fit the premises and/or redecorate?
- What are the tenant’s insurance requirements under the Lease?
- What will the security bond/bank guarantee requirements of the Landlord be?
- Will the Landlord require a personal guarantee from one of the directors of a lessee company?
Retail Leasing – Special Considerations
Retail leases are treated differently to other commercial leases and are covered by a set of unique rules, with each State or Territory having its own Retail Leases legislation.
State/Territory specific retail leases legislation will impact on the negotiation and drafting of retail leases and it is in your interests as a prospective tenant to obtain expert advice to ensure that these rules are being met by the Landlord.
By way of example, retail leases have a much stricter disclosure requirement than commercial leases and prohibit the landlord from claiming lease preparation expenses.
If you require expert lease advice, please do not hesitate to contact us on 1300 544 755.
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