As a tenant entering a retail lease, it is crucial to understand your rights and obligations. To get a sound understanding of the lease you are entering into, you should ask the potential landlord a range of questions. This article sets out a list of questions to ask and provides you with a clear picture of your rights and obligations when entering a retail lease.
Is There an Incentive to Enter Into the Lease?
It is common for landlords to offer an incentive to attract prospective tenants. A lease incentive can be in several different forms and often depends on the circumstances of the incoming tenant. For example, a landlord could offer a:
- rent-free period during the time you are undertaking fit-out works;
- cash fit-out contribution to spend on the works; or
- discount in rent throughout the term.
Obtaining an incentive is a good idea when you have to undertake fit-out works because you will not be operating or making a profit during this time. Ideally, you would not want to be paying rent when you cannot trade.
Can I Gain Early Access to Undertake Fit-Out Works?
If you need to undertake fit-out works, you may want to ask to gain access before the start of the lease to begin work. As this will be before the lease commencement date, you will be occupying the property under a licence arrangement. You will not have to pay rent during this period. However, the landlord may ask you to pay for the utilities or services you use.
Gaining early access will depend on:
- whether there is a current tenant; and
- if yes, when they plan to vacate the property.
If they plan to leave immediately before your lease commences, it will not be practically possible for you to have time to come in early to undertake work. In this instance, it may be more beneficial for you to request a rent-free period while you carry out fit-out works.
What is the Condition of the Property?
It is beneficial to ask the landlord if you can undertake a physical inspection of the property before entering the lease agreement. Inspecting the condition at the start of the lease is vital for several reasons, including:
- suitability for intended use. Firstly, you need to know that the property is suitable for how you intend to use it. For example, an old building may not be structurally sound enough for you to operate your business in;
- any pending repairs. Secondly, the condition of the property may reveal whether the landlord needs to do any repair works before you take over the lease. This will depend on how you intend to use the space and what fit-out works you will be completing; and
- original condition. Thirdly, at the end of the lease, you will typically be required to reinstate the property back to its original condition. Thus, it is essential to document the original condition of the property, so that you are not doing any additional work at the end of the lease. You can do this by completing a condition report at the start of the lease.
Can I Have an Estimate of Outgoings?
As a tenant, you will have to pay outgoings concerning the property. These can include:
- services such as electricity, water and internet;
- council rates;
- security; and
- cleaning fees.
The outgoings must be related to the property, including areas that the tenant or its customers attain a benefit from. The amount and type of outgoings you have to pay will depend on the type of property. For example, if you lease a shop within a shopping centre, you will usually have to pay a proportion of fees that relate to the centre, including management and security.
To see the outgoings you will need to pay, ask your potential landlord for an itemised estimate of outgoings for the previous financial year. This should give you an idea of what outgoings they are charging and will also help you to organise your budget.
Will a Survey Be Carried Out?
It is important to request that the potential landlord carry out a survey. This will help you ensure that you are paying the correct amount of outgoings. Outgoings are payable based on the Net Lettable Area (NLA) of the property you are leasing in proportion to the NLA of the whole property. It is standard commercial practice to determine the NLA by undertaking a survey. This is because the calculation of NLA is determined by:
- the length and width of the leased property; and
- taking into consideration structures and columns that encroach on the leasable area.
Will You Be Demolishing or Redeveloping the Property During the Lease Term?
This is a common question to ask for properties that are within a shopping centre. However, it is important for all commercial tenants to ask potential landlords this question. If your landlord is contemplating a demolition or redevelopment during your lease term, your lease should protect you by including a clause which compensates you for any loss or damage.
Can I Have an Option Term?
It is essential to consider how long you want to lease the property. Even if you are not sure you will want another term, it is useful to have the option to renew the lease. If your business is succeeding towards the end of the lease, you will likely want to renew the term for another option so that you do not have to relocate to your business.
It is important to remember that a retail lease is a legal agreement. Once entered into, the lease will be binding on both parties. As a tenant considering entering a retail lease, it is vital that you have sufficient information about the property. You can attain this information by asking your landlord about:
- early access to complete fit-out works;
- the condition of the property;
- a potential survey of the property;
- the possibility of demolition or development; and
- options to renew the lease.
If you need help with a lease you plan to enter into, call LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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