One of the most crucial things when you start a business is getting your lease right. A bad commercial lease can cost you hundreds of thousands of dollars. You should first get a general understanding of a commercial lease before signing anything.
Here is LegalVision’s key to understanding the basics of commercial leasing.
What is a Commercial Lease?
A lease is really a legally binding contract between two parties. A commercial lease is a legally binding contract between a person who owns the property (the landlord) and a business who wants to rent the property to conduct the business.
Term of a lease
Understanding the term of a lease is fairly straight-forward, but keep an eye out for option to renew the leases. Often these option to renews are three to six months before the end of a lease and contain certain procedures and rules which you need to follow.
Address
This might seem obvious, but getting the correct address is crucial for the operation of the lease.
Rent
Commercial leases must clearly state how much the rent will be for the first term and how it will be calculated after the first 12 months.
Good and Services Tax
Tenants will almost always be required to pay GST in addition to the rent and the landlord should provide a tax invoice to the tenant for this/
Operating Expenses
Commercial leases are required to specify how operating expenses (also known as outgoings) will be recovered by the landlord. These are expenses separate and in addition to the rent.
Utilities
The lease will also contain information about whether or not utilities are included in the rent.
Assignment/Sub-letting
Under leasing law you will be allowed to sublet or assign the lease with the landlord’s consent. The lease should clearly state this. Speak to a leasing lawyer if you have further concerns about this.
Signage
Another crucial clause in a commercial lease – your ability to use signage under lease needs to be virtually unfettered in order to guarantee the success of your business.
Maintenance and Repairs
This aspect of the lease can turn either way and really turns on your ability to successfully negotiate a clause which is in your favour. Disputes often arise over this issue and having a well-drafted clause can cause a great deal of trouble.
Relocation
Read your relocation clauses very carefully – remember once you have signed a lease you are bound to it. You don’t want to be left in a situation where the landlord can relocate you at any time without reasonable costs or notices.
Default
The lease may contain clauses which outline what will happen if you don’t pay your rent – usually either losing possession of the premises and/or right to recover for damages.
Car parking
Car parking in a commercial lease is one of those issues which you don’t consider until the lease is actually completed. You need to make sure there is adequate car-parking available to you and your customers
Refurbishment
This is a huge issue for many tenants, as many sign leases without realising it means they have to completely refurbish the premises to an even better condition to what it was when they got it. This may seem unfair, but the contract law dictates that if you signed it – you agreed to it!
Get a leasing lawyer
When you get a commercial lease take it to a leasing lawyer – you can get fixed-fee legal advice, which may save you thousands in the long-run.