Common pitfalls and how to avoid them when it comes to Commercial & Retail Leasing
You don’t understand the Lease Terms
It is important that you review and understand the terms of a Lease. You should not sign a Lease that you do not understand. Some common terms that you should understand, are as follows:
- The rental amount, when it is due and how it should be paid.
- The period of the lease term and options for further terms, including how the options for the further terms can be exercised.
- Option to renew: Having an option to renew the lease after the initial term is completed is advantageous as, it is not a commitment to re-sign the lease, but an option that you have to renew the lease, which gives you greater security of tenure to enable you to extend the lease if required.
- Whether the rent is inclusive or exclusive of outgoings and, if exclusive, what outgoings are payable and when are they payable.
- Your rights in relation to assigning the lease, sub-leasing or licensing the premises.
- The permitted use of the premises.
- Permitted use: The permitted use should be clearly defined in the lease to ensure that you are able to carry out all the activities required to operate your business so that you are not in breach of the lease. Ensure that you think not only about your business’ present activities but, rather, any activities that may eventuate if you expand your business in the future.
- What landlord and/or tenant’s works are to be done at the premises or the process for requesting tenant’s works.
- Whether the Retail Leases Act applies and whether this is consistent with the permitted use of the premises.
- Retail Leases Act: It is important to properly consider whether the premises are ‘retail premises’ as defined in the Act and the Lease should be carefully drafted to reflect this. You should not assume that the Act does or doesn’t apply, as the Act may nevertheless be deemed to apply, notwithstanding what the Lease says and, in such circumstances, you should understand your rights and obligations.
- Which party is responsible for repairs and maintenance.
- Make good obligations i.e. what condition and state of repair should the premises be left in once the lease has ended. Are you required to undertake works?
- Termination clauses and what is considered a default.
It is important that before entering into a Lease, you understand the planning scheme and zoning of the premises to ensure that the business you wish to conduct at the premises is a permitted use.
You may or may not require a planning permit to undertake your business at the premises, depending on the planning scheme.
We recommend that you do your due diligence to ensure that the premises can be used for the purpose you intend, prior to entering into a Lease or alternatively, ensure there is a condition that allows you to terminate the Lease in circumstances where you are unable to use the premises for your intended purpose.
If planning approval is required, this may lead to delays in occupancy and result in unexpected expenses, if not properly planned.
The length of time that is required to undertake the relevant research to find a suitable location and to negotiate a lease should not be underestimated.
We suggest that 6-12 months prior should be the minimum time allocated to familiarize yourself with the current market trends, explore available spaces, negotiate deals or even consider extending your current lease.
Not leaving enough time between leases can be a major risk in terms of finding an ideal property and negotiating terms.
Not utilising the help of a Legal Practitioner
Legal advice should always be sought when reviewing a Commercial or Retail Lease.
A Real Estate lawyer will be better placed to advise you on the terms of the Lease and any terms that may negatively impact you or your business. They may also be able to make recommendations to better protect your interests.
At Burke & Associates Lawyers, our Real Estate Lawyers have the expertise to assist you in reviewing and advising on your Commercial Lease or Retail Lease. Please don’t hesitate to contact us to discuss your requirements.
Insight written by Kristy Muhlhan and Tamara Maksimovic