If you’re a whiz in the kitchen and looking to start or expand your bakery, batter up and rise to the occasion. Considering the legal issues is the yeast you can do when entering a commercial lease. A commercial lease is a binding contract between an owner of a property and someone seeking to rent the property (you!). It provides a foundation for your bakery and enables you to create a long-term business plan to ensure success. Commercial leases can be whisky business and so, it is important to be aware of the legal considerations relating to your commercial lease.
Key Terms
Before you sign any documents, it is vital that you and the landlord agree to the key terms of the lease including but not limited to:
- The term of the lease;
- Whether or not there is an option for a further term after the original term expires and the methods of exercising such option;
- Start and end of the lease, whether it be dates or the act of handing over keys after the Landlord carries out works or after you completed your fit-out;
- Rent – the amount and how often it is to be paid;
- Rent review – how rent will be assessed and adjusted;
- Special considerations e.g. who is responsible for fit out costs – installing necessary fixtures like ovens, registers, etc.;
- Outgoings payable by yourself on top of rent e.g. rates, cleaning; and
- Whether or not you are responsible for repairs and maintenance and the extent of your obligation.
You must also be aware of whether or not your bakery business falls under the retail category as additional rights and protections are available for commercial retail leases.
Term of Commercial Lease
The term of a commercial lease depicts the key terms and conditions between parties. Most terms are generic, and so you should ensure the term is tailored to your requirements if necessary. The length of a commercial lease often lasts for five years with the option of renewing the lease for up to 25 years. The length of your commercial lease should depend on your goals for your business.
Rent, Rent Review & Security
Paying rent is a serious financial commitment, and so you should consider rent in its entirety rather than just regular payments. When negotiating your rent, consider the average area rent, Consumer Price Index (CPI), inflation and anything else yourself and the landlord deem appropriate.
On dates of review, rent can increase or decrease dependent on a number of factors. Rent usually can only increase once a year. Determining changes in your rent are usually done via the standard methods: CPI, fixed or market.
The Landlord generally also requires some form of security in the event that you may not pay your rent. This is commonly equivalent to a certain number of months rent given in the form of a security deposit or a bank guarantee.
Preventing Disputes
Check with your local council whether or not you are required to have written consent for your bakery before you sign the commercial lease. Be sure also to check whether you require council approval if you plan on performing building work.
Do your research regarding the property and keep a record of all of your interactions with the landlord during negotiations until your lease is over. A reliable recount of each encounter will reduce the likelihood of disputes.
Key Takeaways
When starting or expanding your bakery business, there are a number of legal considerations you should understand. If you ensure you and your landlord agree to all the lease’s terms and make decisions in the best interests of both parties, it will be easier to navigate future disagreements about your arrangements, and you can avoid baking each other crazy!
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Commercial leases can be complex; if you knead any questions answered or would like further insight into starting or expanding your bakery, let our commercial leasing team know.