With rises in property prices and the general inability of small to medium sized businesses to purchase commercial real estate, commercial leases are becoming more and more prevalent each day. The ability of a business to secure a suitable workspace can often mean the difference between success and failure. As such, it is crucial that any commercial lease be well drafted and cover the scope of topics relevant to the situation at hand. The types of clauses that saturate commercial leases are unlimited. Here we discuss some of the more common ones. Ultimately, what your lease should include will depend on the type of premises being let, restrictions (if any) that apply to the property and the use for which the site is designated.
The subject matter of the lease
At the outset the precise nature and description of the premises needs to be ascertained. It is important that the lease both identify and define:
- the boundaries of the lot;
- what is included;
- what is excluded;
- access and use entitlements;
- associated fixtures and or chattels that form part of the lease; and
- entitlements to services and facilities.
A well-drafted subject matter clause is the premise of any commercial lease.
Just as important as the subject matter clause are the terms upon which the lease is being executed. A well-drafted commercial lease should ascertain:
- the commencement date;
- the duration of the lease;
- the end of the lease; and
- any option(s) to renew.
In terms of options to renew, it is imperative that the lease stipulate the duration of the renewal period, the pre-conditions for renewal and the steps that need to be undertaken to exercise the option.
Properties are let for the sole purpose of obtaining rent. Accordingly, a commercial lease must specify:
- the rent to be paid;
- any rent-free periods;
- the intervals at which rent is to be paid;
- if rent is dependent upon the lease businesses’ turnover, the particulars of this; and
- the manner is which rent is to be paid.
It may also be wise to include a rent review clause that establishes the frequency and mechanisms against which rent reviews are to be measured and implemented.
Under a commercial lease, the lessee may or may not be required to contribute to the operating costs of the property. If this is to be the case, it is essential that the lease contain:
- a comprehensive list of all the current operating expenses;
- a general provision that covers similar operating expenses, which may or may not occur in the future;
- excluded expenses for which the tenant will not be responsible; and
- a reimbursement clause.
Commercial leases tend to limit the purposes for which premises may be used. Before finalising the lease, it is important to consider whether the premises are legally and physically suitable for their intended purpose. Towards this end, the importance of a well-drafted use clause cannot be overemphasised.
A well-drafted commercial lease agreement clearly identifies the parties’ rights and obligations under the document and supports the cultivation of a friendly and amicable lessor-lessee relationship. If you would like to have a commercial lease drafted or reviewed, our dedicated team of LegalVision lawyers would be happy to assist you. Don’t leave such an important aspect of business to chance, call us today on 1300 544 755.