The promise of a new shopping centre offers leasing opportunities to those who want to be part of an exciting new retail precinct. Often, developers will strategically build in growing urban areas with high demand. However, unlike existing shopping centres, there are no physical premises to “see” when entering into a lease. It often takes a leap of faith as you will try to visualise how both the premises and the centre will look once the developers have finished construction. Below we have created a checklist for those looking to lease off-the-plan.
1. An Agreement For Lease
When there are no physical premises to lease, the landlord can only offer you an agreement to enter into a lease at a future date or an ‘Agreement for Lease’. Unlike a lease document which sets out the rights and obligations of the landlord and tenant during the lease term, an Agreement for Lease contains provisions that deal with the parties’ obligations leading up to the time the parties enter into the lease.
Most commonly, prospective tenants enter into an Agreement for Lease because there are usually only a handful of premises offered in the centre and everyone wants to reserve a shop. The developer would also want to get as many Agreement for Lease contracts signed up as possible to secure their financial loans to build the centre.
2. Background Checks
It is unlikely that a new development would sprout overnight, and the developer would likely have submitted its development application with the local authority for approval. You should take this opportunity to do your research – ask to see the plans to gauge the layout of the centre, what it will look like and the proposed tenancy mix. After you are satisfied with the information presented, you may then turn your attention to the Agreement for Lease process and documents.
3. Obligations Under an Agreement For Lease Contract
The obligations under an Agreement for Lease usually deals with the construction of the shopping centre and premises. For instance, the landlord is required to carry out the works to meet a proper and skilful standard and must comply with all laws and regulations including obtaining all relevant approval. As a tenant, the landlord’s ability to delay the works may also affect your lease. Ensure that there is a sunset or end date to allow you to terminate the Agreement if the landlord fails to carry out the building works within a set timeframe from the date of signing the document.
The Agreement for Lease should also contain a mechanism to deal with defect rectification works. Usually, this allows you to notify the landlord to make changes and rectify works before you accept to take over the premises in a hand-over.
Handover is the process whereby the landlord has completed its works and offers the premises so you can carry out fit-out works. Sometimes, it may be the case that both you and the landlord will be carrying out works at the same time. It is important to have good communication with the landlord’s builder for any overlapping works. In the event there is a dispute, you should ensure that the Agreement for Lease has a mechanism to resolve disputes in a timely and cost effective manner.
From a legal point, unless the commencement date of the lease is the same date as handover, you will be occupying the premises under a licence arrangement. This arrangement will “bind” you until the date that the lease starts. Consequently, if there is any negligence or default on your part, you will be liable to indemnify and compensate the landlord for whatever happens in the premises. The indemnity provision should be mutual so that it also covers you for the landlord’s default or negligence.
The Agreement for Lease also sets out the scope of your fit-out works. The fit-out process usually involves submitting plans and drawings to the landlord for prior approval, obtaining the relevant authority’s approval and carrying out your works under the applicable laws. It is important that you have uninhibited access to the premises during your fit-out period.
The Agreement for Lease should also include the obligation to enter into a lease once the builders have completed the premises along with a provision setting out how parties will determine the commencement date. A copy of the proposed lease should be attached to the Agreement which will form evidence that the parties have agreed to enter into the lease.
Importantly, you should review the lease document as you will not get an opportunity to negotiate the lease term at a later date. The parties should sign both documents even though the lease will not commence until a future date (in some instances, as long as three years).
It is likely that you will be required to provide security for both the Agreement for Lease and lease document in the form of a security deposit. You should be aware of the situations where the landlord may use the security (usually to rectify any default).
Leasing off-the-plan could represent an exciting retail opportunity if you have done your homework. If you have any questions or need assistance reviewing the lease, get in touch with our commercial leasing team on 1300 544 755.