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Business Leases

Business Leases

Leasing a premises for your place of business, whether it’s office space, commercial space or a retail premises, will be one of the biggest over-heads you’ll have to meet as a small business owner. Negotiating the right property lease for your business is key.
 
Here are some tips and considerations to help you negotiate a favourable lease agreement.

 
Permitted use of premises
 
Commercial and retail leases will include a clause(s) relating to the permitted uses of the premises. It’s crucial to ensure that the permitted uses stated in your property lease agreement do not exclude any aspect of your business operations and also accommodate any future plans for diversification or expansion of your business during the term of the lease.
 
Permitted uses for commercial or retail premises will also be informed by government regulations and legislation and may have specific terms or restrictions associated with the business use such as operating hours and business licence requirements. 
 
What to do:
  • Assess uses of other occupants
    Are the business uses of other occupants in the premises compatible with your business? Are there any direct competitors or businesses with similar uses that might compromise your business?
  • Check local and state government regulations
    Make sure you are aware of any restrictions imposed on the use of the premises by council zonings and other Government legislation including restrictions on access, licences or operating hours.
  • Think ahead
    Make sure the permitted use of the premises as stated in your property lease covers any future plans for your business.
  • Put use restrictions in writing
    You may be able to negotiate terms that restrict the landlord from leasing space in the same premises to your business competitors or to particular business uses that might be detrimental to your business.  If so, make sure the terms are clearly stated in your lease agreement.

 
 

 
Information on licences required to operate your business in Australia.
 
Information and advice on leasing business premises.
 
  
Rent & Outgoings
 
Rent and outgoings are one of the key areas for negotiation in a commercial or retail lease agreement.
Landlords may be willing to reduce rent for longer-term leases or offer free rent for a set period of time at the commencement of the lease.
 
Fixed rent, particularly over longer-term leases is very rare with commercial leases typically including a rental increase clause. Rental increases during the term of the lease may be stated in terms of a percentage of the CPI (consumer price index) each year or they may stipulate periodic (e.g. yearly) reviews of the rent amount.
 
Tenants will also be required to pay a security bond or deposit (typically three months rent) which should be clearly stated in the lease agreement.
 
Outgoings
Many landlords will also want to pass on operating costs such as rates, maintenance, insurance, security costs and so on to the tenant. Outgoings of this kind will either be included in the rental payment or be payable as an additional amount.
 
What to do:
  • Do your homework
    Talk to other tenants and find out how long the premises has been vacant for. A landlord may be more willing to negotiate rent if a premises has been vacant for a period of time or if other occupants’ leases are up for renewal.
  • Negotiate rent
    Negotiate and fix the rental amount and terms including payment frequency, rental increases and any inclusions in the rental amount such as rates or maintenance costs. Make sure all negotiated terms relating to rent are clearly stated in the lease.
  • Don’t over-commit
    Think carefully about your business plans before you commit to a longer-term property lease, especially if you are a start-up. As a lessee, if you vacate the premises before your lease end-date, you will typically be liable for rental payments for the duration of the term.
  • Cap outgoings
    If outgoings are not included in the rental amount, negotiate a cap or fixed fee for all outgoings. Ensure that the outgoings are clearly defined in the lease agreement and ask for periodic statements that itemize outgoing fees such as gardening, maintenance, advertising costs etc.
  • Talk to your accountant
    Seek your accountant’s advice on the most tax-effective way to structure the rent, outgoings and GST.
 
 
 
 
Information on lease agreements and your rights as a lessee.
 
   
Other terms & obligations
 
Other lease terms that you should be aware of include responsibility for fit-out costs, maintenance and repairs, property improvements, use of common areas, sub-letting and lease renewal options.
 
Improvements & alterations
Many standard commercial lease contracts will stipulate that you cannot make any material alterations or improvements to the property without the consent of the landlord. Ensure that the clause also provides that the landlord’s consent won’t be reasonably withheld or delayed.
 
Avoid signing leases that include a provision that the premises must be returned to its original condition at the end of the lease period.
 
Common areas
Your usage rights for common areas of the premises including signage rights and restrictions and car-parking allowances for staff and visitors should also be negotiated in line with your requirements and clearly defined in your property lease. Make sure the terms relating to your use and access to common areas don’t compromise your business operations.
 
Sub-letting
Ensure that your lease agreement gives you the flexibility to sub-let or re-assign the tenancy of the premises in the event that you sell or change ownership of your business or choose to sub-let part of the premises to another business operator/s.
 
Option to renew
Make sure that you negotiate an option to re-new in your commercial lease agreement at a fixed or pre-determined price as opposed to a ‘market price’ or an amount to be negotiated.
 
Right of first offer or first refusal
A right of first offer obligates your landlord to offer you any space that becomes available in the premises before they offer it to any third parties while a right of first refusal means that your landlord is obligated to offer you the opportunity to match any deals before signing with any third parties.
 
Other Obligations
Most commercial leases will hold you responsible for keeping the premises, fixtures and fittings in good repair. Make sure any terms relating to your obligations and responsibilities as a tenant are fair, reasonable and clearly stated.
 
What to do:
  • Know your requirements
    Make sure the terms of your lease cover all of your requirements and do not prevent you from doing anything that you will reasonably need to do throughout the term of your lease in order to run and grow your business. E.g. client/customer car-parking, signage, lease renewal and sub-letting options. Make sure all negotiated terms are written into the property lease.

  • Negotiate terms
    Remember that all terms are negotiable. If the lease agreement presented to you by your prospective landlord does not meet your business needs and requirements, negotiate the terms that are not favourable.

  • Inspect and document the property
    Make sure you inspect the property thoroughly, take photographs and make notes to avoid any disputes about the original condition of the premises at the end of your lease agreement.

  • Get your solicitor to review your lease agreement
    Before you sign your commercial or retail lease, always get a solicitor to review your lease agreement and explain your contractual obligations to you. Keep a copy of your lease in a safe place.
 
 
 
 
Index of state information and advisory services on commercial and retail leases.
 
 
Important - Read This: This information is intended to provide general information only which may not be applicable to your particular circumstances.  You agree to access this information at your own risk and that First Point Media Pty Ltd is not liable to you for the content of the information or any reliance by you on this information.