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Welcome to Part 2 on What to look for when entering a lease as a franchisee. Here we will discuss the impact of various other clauses including demolition clauses, make good clauses, clauses requiring the lessee to give up certain rights, clauses that permit unlimited fees and rules that shopping centres try to impose on the tenants of its properties.

What is a Demolition clause?

A demolition clause is a clause which generally allows the landlord to serve the tenant with a demolition notice at any time. Once this occurs, the tenant must vacate the premises and will no longer be able to operate the business at the premises. Although some financial compensation may be sought under the relevant state-based retail leasing legislation, it is still a good idea to negotiate with the lessor so that they are not allowed to serve such a notice for a minimum period of time, such as the first 5 years. The cost of not negotiating a minimum period during which no demolition notice can be served is the amount of money you might end up spending fitting out the premises, only to be asked to vacate shortly after.

Make sure you seek compensation if you do end up having to leave the property as a result of the landlord exercising his/her rights under such a clause.

What is a Make good clause?

As a tenant, you will need to check to see what “make good” obligations you have under the lease agreement. An example of a make good obligation might be to return the premises to its original state, i.e. repaint, remove signage, etc. In many cases, tenants are very excited about taking possession of the premises so that they may grow their businesses, and, in rushing, forget to review these obligations.

When you budget for a lease agreement, it is important to take into account the costs that may be incurred in making good the premises at the end of the lease. If you are unsure as to your make good obligations under the lease agreement, speak with a leasing lawyer.

Giving up certain rights

Under certain circumstances, a lease agreement may allow a landlord to force the tenant to give up particular rights. For example, if a landlord wants to do renovations in a shopping centre, the lease agreement may dictate that the tenant cannot enforce its right of quiet enjoyment of the premises. It is recommended that such clauses be removed.

Unlimited fees and outgoings

Make sure you and your leasing lawyer go through the ‘outgoings’ clause in your lease agreement. You should also be sure to check the disclosure statement for a more detailed explanation of what will be included in outgoings. It is not uncommon for landlords to attempt to pass on costs to tenants, particularly those that may be shared, such as maintenance, management and security. Where possible, you and your leasing lawyer should try to remove these costs from those included in the outgoings.

Shopping centre regulations

In most lease agreements (in shopping centres) there will be a set of shopping centre regulations attached to a schedule. Read them with your leasing lawyer to make sure they are appropriate.

Conclusion

There are a plethora of factors you should take into account when entering into a lease. Whether you seek assistance in negotiating these terms from your franchisor or do your own negotiations, always seek advice from a leasing lawyer and financial adviser with respect to the documents you are being asked to sign. For assistance, contact LegalVision on 1300 544 755.

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