Looking into entering a commercial or retail lease for your new business? Unsure about what you should be checking before you sign the dotted line? Don’t worry; it’s completely normal to have some doubt.
There are a number of things you should consider before signing a commercial or retail lease,
The Term of the Lease and your obligations to pay rent
When you sign a commercial lease, you are financially committing yourself to regular payments over an extended period of time. Paying rent on a weekly or monthly basis is a fundamental term in every commercial or retail lease. As you make monthly or weekly payments, depending on your payment terms, the amount in rent can stack up to be hugely expensive. Upon signing the lease, you are warranting that you can pay this amount every due date for the entirety of the lease term. If your rent is $500 every week for 5 years, you are agreeing to pay at least $130,000 plus any rental increases regardless of how much revenue your business makes.
Late rental payment can result in forfeiture of the property to the landlord. This can happen without notice and can prevent further access to the premises by you as the tenant. During this period, the landlord can continue charging you rent until a new tenant fills the vacancy, which means you may end up paying rent long after you have left the premises if the term of the lease is still current.
In monetary terms, the commitment in a commercial lease is clearly quite significant. By seeking advice from a commercial solicitor or leasing specialist, you’re not only saving time and money, but also relieving yourself of any apprehension or nerves that you may have about the whole process. A leasing lawyer can review the lease and advise you on the terms and conditions being imposed on each party. The importance of having a full and comprehensive understanding of the contents of your commercial or retail lease cannot be underestimated.
Running a business involves numerous expenses: rent, wages, electricity, stock, supplies, all of which can impede on your ability to pay rent. Before singing a lease, consider what you’ll need financially to manage your obligations and make the business profitable. Ensure your business has reliable financial support. Make a comprehensive business plan or hire someone with expertise who can advise you.
The landlord is under no obligation to reduce the rent just because the business is thriving. The landlord also has no obligation to release you from the lease because the business is failing, you have family commitments, or you are physically or emotionally unfit to work. Sometimes even the best financial advice cannot anticipate unforseen events. If you are having difficulty paying your rent, the first thing to do is contact your landlord and try to negotiate with them. If the landlord is not open to discuss options, contact a commercial lawyer to negotiate on your behalf, or other contact the Office of the NSW Small Business Commissioner.
Permitted Use/ Local Council Consent
Depending on the type of business you intend on running, you may need consent from the local council. Check first before signing your commercial or retail lease.
Speak with the council’s ‘duty planner’ about your plans to renovate the premises. Any fit-outs or other building work may require a lodgement of an application for development consent. Don’t put any faith in the landlord’s knowledge of council regulations, as rules around planning and zoning regularly change. Any attempt to build without first getting council approval can lead to the council stopping you from trading, closing your shopfront and preventing further construction.
If you plan on building, how long will you need to get development approval and complete the work? This period (before trading commences) can be costly, as no income stream exists yet. During this stage, our lawyers will attempt to negotiate a rent-free period on your behalf. Have a think about how you would manage your finances if the development takes longer than anticipated and you’re required to start paying rent.
Stay tuned for part two on what to do before signing a commercial or retail lease. For further legal advice regarding retail or commercial leases, contact LegalVision on 1300 544 755 to speak to a leasing lawyer.