The Lowdown on what Tenants need to know when Leasing a Premise
Leasing premises is a major investment decision for anyone with a business. It can be complex and fraught with potential problems, not the least of which is the prospect of losing a business should something go wrong!
When you consider that one of your most important business assets is your lease, as a tenant it becomes critical that you understand the implications of a lease and your rights and obligations.
In fact, your premises are often the most tangible part of your business. Many aspects of business are affected by your location - from attracting clients/customers through to delivery and receipt of goods - why risk losing it all over a lease dispute? Expert legal advice will ensure that your needs and your rights are taken into account during a lease negotiation. Not only will it enhance your business opportunities, but in the event that you choose to sell your business, a sound and secure lease is vitally important and could make or break the deal.
When you have found the right premises, in the right location for your business, some specific issues you need to consider when negotiating the lease include:
- Whether you can gain the relevant licences (such as a liquor licence) and the relevant approvals from Council to run your business within the premises
- whether specific legislation might apply to your particular premises eg. retail leasing legislation, Heritage legislation
- what warranties you can secure from the landlord regarding damage to the building etc and whether you’re covered in case there is need for relocation or demolition of the building
- how, and when, the rent will be reviewed and what your responsibilities are in terms of outgoings
- what is the term of the lease and when can you exercise any options for renewal – you will also need to carefully diarise reminders to ensure that you meet the relevant requirements for exercising these options
- what the make good provisions are.
General Items for Negotiation in a Commercial Lease
Most commercial leases will take into account the following “items” that should be negotiated between you and the landlord (lessee and lessor) and incorporated into the documentation:
- Rental payments – how much and when to pay
- commencement date of rent period, depending on completion of fit-out and obtaining relevant approvals for business, etc
- outgoings payable by the landlord or the tenant
- term of the lease
- options available for renewal and how/when to exercise the option
- maintenance – your landlord is generally responsible for structural repairs and you are responsible for the day-to-day maintenance of premises
- use - what the premises can be used for, the type of business permitted, etc
- assignment/Sub-letting – whether the landlord gives consent and what approval procedure is in place
- insurances required
- obligations of each party at the end of the lease.
Retail Leasing – Special Considerations
Retail leases are treated differently to other commercial leases and are covered by a set of unique rules. The Retail Leases Act in NSW has an impact on the negotiation and drafting of retail leases. Ignorance can lead to significant penalties so expert advice is recommended.
Some important aspects of the Act include:
- The definition of, and what constitutes, a “retail” business
- obligations for lessors and agents to disclose and provide information to lessees quickly when entering into negotiation of a lease, as well as throughout the term of the lease
- provisions under the Act for fit-outs and how costs are dealt with between the lessor and lessee
- restrictions regarding the advertising of available retail space to new tenants, unless the lessor has specifically offered a renewal or extension to the existing lessee which has been refused
- the security bond system requires payment of a bond to the Retail Tenancy Unit for investment and management
- there is a of the Act has been written to deal with misleading or deceptive conduct by either party to a retail lease
- independent retail valuers are used to determine rent reviews in the event that both parties can’t agree on the actual rent
- detail is required from lessors in the disclosure statement relating to “disturbances” which might interfere with the lessee’s operations if they are to avoid liability (previously, a lessor only had to provide written warning of a likely disturbance to avoid responsibility).
As a retail tenant, you should be aware of the impact of the Act whether you are negotiating a new lease or when your current lease expires and comes up for re-negotiation.
If you would like further information or have questions in regards to leasing, please contact: