If your commercial property lease or retail shop lease is ending in the next 12 months, start planning today!
Business success depends upon a solid foundation, which often starts with your business premises. Diarise the key dates to exercise your Lease Renewals & Options.
Our comprehensive Lease Renewals Guide will assist you with many of the key leasing issues.
The issues covered in the Guide include:
1. Start Early
- You may be surprised at the amount of time needed to investigate all of the possibilities for your lease.
- With your decisions affecting the success of your business for many years, start the process 12 months in advance to make the best decision.
2. Consider Alternate Properties
- Before extending your current lease, decide whether there are any superior properties or cheaper properties which might be suitable.
- The benefits of an alternate property have to be balanced against the expense & inconvenience of relocating your business.
3. Independent Commercial Property Advisor
- You might appreciate the assistance of an experienced commercial property advisor with knowledge of the relevant property market.
- Whilst you are an expert regarding your business, you may not be aware of all the options available to you regarding your existing lease, or alternate properties.
4. Before Negotiating with your Landlord
- The benefits of alternate premises may be used in negotiations with your current landlord. Where you have been a good tenant for an extended period of time, a prudent Landlord will want to keep you. Therefore, try to negotiate with your Landlord to obtain some of the benefits that would be available at alternate premises.
- Some Landlords have limited scope for negotiation. Therefore, regardless of the commercial realities of the marketplace, some Landlords will not negotiate in any way which does not involve an improvement of the Landlord’s position.
5. Is there an Option to Renew
- Where you have no option to renew & the lease term ends, you can attempt to negotiate with the Landlord to enter into a new lease on the same or similar terms or seek to make substantial variations to the lease terms.
- Where you do have an option to renew & you have complied with your lease obligations, you have the legal right to extend the lease on the same terms & conditions.
6. Lease Renewal when an Option to Renew
- Where the lease contains an option to renew, the option must be exercised strictly in accordance with the lease:
- There must be no outstanding breach of any lease term
- Notice is given to the Landlord in writing at the nominated address within a specific time period
- Where the Landlord is willing to negotiate, some of the lease terms worth consideration are discussed in the section below: “Lease Terms For New Lease”
7. Lease Renewal When No Option to Renew
- Where there is no option period but you wish to continue to occupy the premises, you need to contact the Landlord early to ascertain whether it is interested in continuing the arrangement, and also look at alternate properties as a contingency plan.
- Where the Landlord is willing to negotiate, some of the lease terms worth consideration are discussed in the section below: “Lease Terms For New Lease”.
8. Lease Terms for a New Lease
8.1 ASSESSMENT OF MARKET RENT
The rent payable at the commencement of the new lease term will usually be the ‘market rent’ payable for the particular property at that time, to be agreed between the Landlord and Tenant.
8.2 RENTAL BOND / BANK GUARANTEE
As the amount of the bond / guarantee is calculated as a multiple of the monthly rent (Eg- 3 months’ rent plus GST), an increase in the rent will often require a new Rental Bond or Bank Guarantee to be provided for an increased amount.
8.3 LENGTH OF LEASE
The Tenant needs to consider both the benefits & disadvantages of a shorter lease compared with those of a longer-term lease before it commences its negotiations with the Landlord.
8.4 PERSONAL GUARANTEES
Where the Tenant is a private company or a trust, the Landlord usually requires the individuals behind the company or trust to provide a personal guarantee.
8.5 ESTIMATE OF OUTLAYS
You should not assume that the amount of outlays paid in the past will continue into the future, or that the same trend will continue into the future.
8.6 INCREASE THE PERMITTED USE OF PREMISES
As you can only use the premises for the permitted use stated in the Lease (unless the Landlord consents to some other use) it is in your interests to broaden the scope of the potential use of the premises.
You should review your insurance arrangements to satisfy yourself that your insurance is of a high standard both in relation to the scope of the coverage and the cost of the premium.
8.8 PROTECTION OF YOUR LEGAL INTEREST IN THE LEASE
Where your current lease is registered on the title to the property, it is essential that the details of the new or extended lease term are also registered on the title to better protect your interest in the premises.
9. Risk Management
- Whilst a requirement to review &/or implement your risk management & business contingency plans is not specifically triggered by the renewal of a lease, it is mentioned here due to the frustrating frequency with which Australian small to medium business fail to address this fundamental component to business success & continuity.
- Where the business owners and key personnel are all in good health, it is not too late to implement the Buy–Sell Agreements and complementary insurances needed to safeguard the future of the business & the financial resources to pay the lease rental