Five things to consider when taking out a commercial lease
1. Is the rent fair and will it increase?
It goes without saying that you should be comfortable with the rent you are paying, but the real challenge is to be completely sure that the rent is appropriate for the space you are using. Some questions to ask yourself could include:
- Do you have access to common areas and elevators?
- Do the measurements in the lease of the space you’re using include the thickness of the walls?
It might sound silly to check some of the more simple items, but if you can negotiate a better price for the space you are using, you’ll be patting yourself on the back at the end of it.
You should also be aware that it’s common for commercial lease agreements to have an annual percentage-based rent increase. It would be wise of you to negotiate this with your landlord, to ensure a cap is put on this percentage. That way you can avoid being stuck with unmanageable costs as the rent increases each year.
2. Can I do what I want with my leased premises and what am I responsible for?
Before entering a lease, you should consider what activity you will actually be engaging in on the premises. Commercial lease agreements can have clauses that prevent you from certain activities or define the activity that is allowed to be untaken on the premises. You should ensure that your plans for your space can be fulfilled.
The same should be said for any plans you have to modify the property you are leasing. Ensure your lease agreement has clear terms about what modifications or improvements can be made. For example, if your business requires advertisements and signs to be visible from the street, you should check that this is allowed under the lease so you don’t face problems later on.
Take the time to also check who takes care of the maintenance and repair of a premises, air conditioning, equipment and associated utilities. This will usually be shared between you and your landlord however, you should make sure that your lease agreement spells this out clearly so you aren’t lumped with unexpected repair costs.
3. How long am I locked into this thing?
You probably won’t be surprised to find out that most landlords like long-term lease agreements. This is because it offers them the security of a long-term tenant. However, if your business is new or uncertain, you may be offered a short-term lease with an offer to renew. This may make your rent higher than the long-term alternative, but it also gives you a way out if you’re not sure of the stability of your business or how long you wish to stay at the one location.
4. Do I have any rights here?
You should check that your lease has a Right of Assignment clause, to ensure you have the option to transfer your lease to a new tenant. You should consider if there are any options to renew the lease or expand the space you are renting, should you need it. Talk to your lawyer about how your lease would be terminated, at what penalty and if you need to provide your landlord with notice of your intentions.
5. Have I had my lawyer check all the clauses?
If you are interested in commercial leasing you should always seek legal advice to ensure you avoid sneaky clauses in your lease that may be to the benefit of your landlord and not you. For example, if you‘re leasing a premises in a shopping centre, it is worth asking whether you have to comply with the centre’s fit out rules for your business, whether you are required to contribute financially to the marketing and promotional activities of the centre and whether your business would be affected by any ownership plans to redevelop or expand the centre.
Where to from here?
Should you require advice about your commercial lease, or need any advice as a landlord or tenant, please do not hesitate to contact: