A commercial lease is a legally binding contract between an owner of commercial property (landlord) and a third party (tenant). Retail leases are a type of commercial lease, covering properties intended wholly or partially for retail shops.
If you are considering setting up a cafe in NSW, you will soon need a retail lease. The premise is likely to be your cafe’s most valuable asset, and this makes it very important that your have a workable retail lease that doesn’t unfairly set back your cafe. Below, we set out some general considerations you should have when looking at the terms of their retail lease.
Subject Matter of the Lease
The retail lease should explicitly specify the part of the property your business is leasing, including dimensions of the area. The lease must also include all tenant responsibilities and obligations regarding common areas of the building such as stairs, driveways and lifts. Certain matters, like parking for customers and employees, can be easily overlooked. If your cafe requires parking, you should make sure the lease includes the number of spaces you need.
Use of the Premise
Before signing your lease, make sure you have negotiated a lease that allows you to carry out your business within the commercial property. You should also be aware of any restrictions on the premises such as hours of access. Where there are adjoining commercial tenants, you may be prohibited from making renovations during trading hours. Most shopping centres also prohibit the use of power tools during business hours.
An Option to Renew
Your retail lease may also include an option for renewal. These terms give you the opportunity to extend your lease before it ends with the same conditions in place. This spares you the hassle of renegotiating with the landlord on the terms of the lease, which could prove to be a costly exercise. Some tenants often find themselves having to settle for different rental payments and services charges.
Retail Leases are required to specify how your landlord will recover outgoings. Outgoings are the costs associated with the maintenance of the premises and include the following:
- Council rates
- Day to day costs
- Water rates
- Insurance premiums
- Repairs; and
- Promotional funds for marketing purposes.
The lease and disclosure document must include, by law, all outgoings. It is important to speak to a specialist leasing lawyer to get estimates of these costs so that your business can budget accordingly.
Fixtures and Fit Outs
Most retail leases include a make good covenant requiring you as the tenant to remove any fit outs and equipment, regardless of who installed them. This allows the landlord to have the premise ready for the next occupant. Tenants are open to negotiate a make good payout which spares them of their make good obligations at the end of the lease. This means they simply need to take away loose equipment and vacate the premise.
Depending on the lease’s length, you may need to address terms of refurbishment in your contract. Retail leases can require you to refurbish the premises at regular intervals, and while it benefits your business, it is also quite costly. You should ensure your lease clearly sets out the nature, extent, and timing of the refurbishment and limit this to an agreed time frame.
If you are looking to start your cafe, it is important that you are aware of the legal considerations associated with entering into a retail lease. Having a specialist leasing lawyer review your cafe’s lease will put you on track to focus your energy on growing your business (and perfecting your latte art). Questions? Get in touch.