Negotiating a Retail or Commercial Lease
Negotiating a Retail or Commercial Lease Whether it is a retail or a commercial lease, a tenant should carefully consider what terms they would like to be included in the lease as some will need to be negotiated with the landlord.
These include:
* The term of the lease – Think about how long you want to conduct your business on the premises. As a lease is a legally binding contract, you cannot just leave because you wish to. A typical lease may be for 3 years with a 3 year option meaning when the initial lease expires you get to stay on, if you want, for a further period upon similar terms. But all this is negotiable before you enter into the lease.
* Rent – Make sure you will be charged a fair rent at the start. After that rent is normally reviewed annually so that the rent will be adjusted either by a fixed percentage, a change in the Consumer Price Index or a market rent review. Also, if you exercise an option to stay on, normally there will be a market rent review at that time as well.
* Bond – Usually a landlord will require a bond as security against any default by a tenant under the lease such as failure to pay rent. This will take the form of either a security deposit or a bank guarantee for an amount equivalent to up to three months’ rent plus any outgoing plus GST.
* Personal Guarantees – If the tenant is a company, often the landlord will require personal guarantees from the directors which puts their personal assets at risk if there is a default under the lease by the company.
* Outgoings – It is matter for negotiation whether the landlord or the tenant pays for outgoings such as Council rates, water charges, land tax, strata levies etc. and, if it is the tenant, what percentage of those outgoings they should pay.
* Permitted Use – The tenant must be sure the correct permitted use of the property is stated in the lease as it cannot be used for any other purpose without the landlord’s consent. The tenant should also ensure that the use is allowed by the local Council and whether a Development Approval needs to be obtained.
* Other Terms – The tenant should also ensure that any other matters of importance are included in the lease before it is entered into. Examples are the right to fit-out the premises, the right to install a kitchen, the right to a rent free period and the right to have air-conditioning installed.
August 2019