Women negotiating and signing agreement

Renting premises and negotiating the lease

by Angus Jones
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You have found the perfect place to rent for your business and its time to sign a commercial lease.  This guide looks at what you need to know about renting premises and negotiating the lease.

A commercial lease is a legal agreement between the owner of a commercial property and someone who wants exclusive use of it for a set time period. It normally applies to a retail store, office, industrial unit, warehouse or factory.
A retail lease is a type of commercial lease used for retail shop businesses. Unlike explicit commercial leases, retail leases attract additional protection under State-based legislation. Generally, a lease will be governed by the relevant State Act if the retail premises is in a shopping centre.

WHY should I not just sign straight away when renting premises?

The terms of this lease will be something your business must abide by for the term of the lease and could ultimately determine your success or failure.  Indeed the terms of the lease are just as important as finding the right property.  Please read our guide on finding the right property.

WHAT questions should you ask before signing the lease?

  • What is the permitted use of the premises? Check if there any zoning restrictions that may prohibit your business activity.
  • What is the lease cost per month?
  • What additional outgoing costs may be payable? You should request a breakdown of likely outgoings additional to rent.  These might include maintenance, cleaning, repairs on your departure.
  • Are there any incentives?  Fit-out subsidies, rent-free or ret reduction periods.
  • When does the lease end and is there an option to renew?
  • How much is the security bond? This is normally negotiable.
  • Do I have to provide a Personal Guarantee?  In an extreme case, you could be asked to put your house as collateral to ensure rent is paid (you do not have to agree)
  • What is the lease duration and options to renew? The goodwill of your business can easily become associated with a location so an option to extend protects that. Counter to that you may want a short lease as a new business if things don’t work out.  So a one year lease with an option for a further 2 years might be the answer.
  • When are rent reviews and how often? This is the time you get to negotiate as it will affect your cost increases in the future.
  • Do you have to pay promotional or marketing funds? – If you have a retail lease be aware of the obligations of having to contribute to marketing funds for the shopping centre.
  • What are the refurbishment requirements? A shopping centre may require you to refurbish every x years.
  • Public Who will pay for creating the lease?
  • Does the agreement allow the lease to be terminated early?
  • Can the premises be assigned or sub-let?
  • Does the landlord have a mortgage on the premises and has the lending authority given approval for the lease?

HOW do I take out a commercial lease?

Negotiation is possible with a commercial lease. The ability to negotiate depends on how long the property has been vacant for, how eager the landlord is to find a tenant, and how many other potential parties are trying to secure the property.

Make sure the landlord owns the property they are attempting to lease and confirm which part of the property is being leased. This last step is important if there are multiple tenants.

Before you sign make sure that you have all the necessary information and have done all the necessary searches. As we have seen, this legal document can be complicated and you should get good financial and legal advice.

The savings they help negotiate from incentive terms, including those about the fit-out, rent, signage, marketing and advertising fees, and profit-sharing arrangements, might pay for experienced legal advisor fees.

The most common disputes arising from leases occur around renewal options, mechanisms for rental price increases and repairs, maintenance, removal at the end of a lease.

HINTS

Ensure you have a clause in the lease agreement giving you the right to quiet enjoyment of the premises during set hours  (for example, what if a noisy neighbour moves in)

Have the premises independently inspected before signing a lease. You and the owner should accept a condition report, including photographs. This report is useful if a dispute arises when the lease ends about the condition of the premises or equipment, and whether this has been caused by fair wear and tear.

You should give serious consideration to the risks associated with redevelopment and relocation. If you are unable to negotiate adequate compensation, you should consider whether the potential risks for your business make it worth entering into the lease.

Document everything to avoid issues at the end.

A likely requirement of your lease will be to have valid public liability and plate glass insurance so ensure your insurances are kept up to date.

SUMMARY – negotiate the lease for renting premises

A lease’s fine print is just as important as finding the right property.  Get the right financial and legal advice that can help you interpret and negotiate the lease. Document everything to help avoid issues when renting premises.

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