While lawyers typically negotiate terms in a commercial lease, they cannot negotiate rent. Rent is a commercial consideration between parties. Below, we set out how a lawyer can help parties during commercial lease negotiations including rent, fit-outs and term.
1. Rent
Typically, a landlord and tenant work out the rent payable. Commercial leases calculate rent in any number of ways. The most common include providing a base rent figure with no outgoings included or base rent plus outgoings. Alternatively, a lease could allow for rent plus a percentage of sales or according to a rent review. Rent reviews calculate rent using a benchmark such as the consumer price index, annual turnover or via a market review.
2. Fit-Outs
If the premises requires a new fit-out, you will need advice on how these costs will affect your business. A landlord can provide you with a lease incentive to help pay for the fit-out. This payment is a bonus or discount in consideration for your entering into the lease. It can be a rent-free period or a contribution to assist you with the cost of the fit out.
A lawyer can help you to understand how the lease apportions these cost. He or she can also make sure that the agreement gives you permission to carry out any particular work for a fit-out that would otherwise constitute an alteration of the premises.
3. Term
All tenants need a lease that is long enough to provide security and stability without running the risk of outgrowing the particular premises. For a lessor, a longer lease provides them greater commercial security. A lawyer experienced in leasing, with knowledge of the current market and what is typical for similar leases, can negotiate for you a lease term that best meets your needs.
4. Operating Expenses
Commercial leases require tenants to pay for outgoings or operating expenses. A commercial leasing lawyer will know what expenses tenants usually pay and, if relevant, what proportion.
5. Assignment and Subletting
Unlike retail leases, there is no state or territory legislation to guide the rights of a commercial tenant as concerns assigning their lease or subletting the premises. Retail lease statutes sharply limit the reasons a landlord can refuse consent to an assignment. While a commercial lease will not necessarily preclude assignment or subletting, it may give the lessor such power to refuse consent or impose such conditions on a tenant as to make it practically impossible. In that case, professional expertise can help by negotiating for you a robust right to assign the lease or sublet.
6. Make Good and Refurbishment
A commercial lease can require a tenant at the end of the lease to return the premises in their original condition. Others require a tenant to pay for services such as recarpeting or repainting. A lawyer can help to negotiate a term that is not unfair or excessively onerous.
7. Costs of Preparing the Lease
Retail lease legislation prohibits a landlord charging a tenant to draft the lease. However, there is no equivalent for commercial leases. Best practice is that both parties cover their costs. A lawyer can help to ensure that a landlord does not charge you for their costs in preparing the lease.
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Renewing a commercial lease is a significant undertaking for any business and needs careful thought and professional help. It is essential that the lease is in your commercial interests. If you require assistance in your retail or commercial lease negotiations, get in touch with our experienced commercial leasing lawyers on 1300 544 755.