Before signing a lease for a Commercial or Retail property, ask a property lawyer to review the Landlord’s Lease documents.
1. Before You Start
When negotiating the terms of the Lease, you must do so on the basis that you are not bound until the Lease is signed by both you and the Landlord. When submitting an Offer to Lease, you should reserve your right to require changes to the draft Lease document if necessary.
2. Financial Due Diligence
Obtain professional advice from a specialist financial adviser or tax professional, such as an Accountant, with respect to:
- the commercial viability and the tax implications of the Lease or any conditions contained in the Lease (such as incentives); and
- financial and taxation advice about the operation of the business intended to be carried on.
3. Consider The Total Financial Cost
Calculate the total financial commitment of a Lease. Where, for example, the rent is $500 per week, the total rent payable for a 5 year lease with 4% annual rent increases is $140,824.38.
Where you are leasing the property with business partners who have less financial resources (or who are well organised!), you may be the one liable for the entire debt where the business fails.
4. Funds Required At The Commencement Of The Lease
The Tenant should confirm how much money it will need at the beginning of the leasing process to ensure it has adequately budgeted for all expenses, including an additional contingency amount for unexpected costs.
5. Who Will Be The Tenant?
Before submitting an Offer to Lease, obtain advice from your Lawyer and Accountant as to the most appropriate legal entity to lease the premises. The Tenant may be a person, a company, a trust (where the trustees are individuals or companies), a partnership of trusts etc.
6. Who Will Be The Guarantor?
Where the tenant is not a person (excluding public companies) the Landlord will usually require the obligations of the Tenant to be personally guaranteed by the directors of the company or the individual persons behind a trust, as a safeguard where the Tenant fails to comply with its lease obligations to pay rent etc.
7. Building Inspection Report – Engineering Report
Obtain a comprehensive building inspection report or engineering report of the building from structural or civil engineers to confirm the structural soundness and general condition of the property.
8. Fitout Of The Premises
Where the Landlord agrees to contribute to the cost of the fitout or to undertake the fitout, ensure that very specific details of the work to be undertaken is contained in the Lease document as a special condition.
9. Term Of The Lease ~ Option To Renew
The Lease will state the term of the lease, that is, the length of the lease in years and/or months – from the commencement date. Where the Lease does not contain any option to extend the term, the Tenant must vacate the property by the end date of the lease.
The Tenant must arrange various insurance policies and should provide a copy of the Lease document to its insurer or insurance broker to determine the most suitable insurance. The Landlord may want to approve the insurer, and will require a certificate of currency of insurance.
11. Use Of Premises
The Tenant must only use the premises for the permitted use stated in the Lease. The use of the premises should be expressed in the broadest possible terms for your circumstances.
12. Lawfulness Of Use
Obtain a copy of the certificate of classification to check that the certificate is appropriate to the class of building. The tenant should make its own enquiries that the permitted use is permissible, and that all approvals and consents of relevant authorities have been obtained, prior to signing the Lease.
13. Suitability Of Premises
You should verify that the structure of the premises is suitable and adequate for its intended use.
14. Will You Have Business Competitors?
Where the Lease does not contain a clause stating that you shall have the exclusive right to conduct the permitted use within the complex, even where there is no similar competing business when you sign the Lease, this situation may change in the future, regardless of any statements that may have been made to you.
Where signage is an important aspect of the success of your business, this issue requires careful consideration. Before signing the Lease, provide the Landlord with detailed description and drawings of all proposed signage and obtain the consent of the Landlord.
16. Can The Landlord Relocate You?
Where the Lease contains a clause permitting the Landlord to relocate the lease, the impact can be substantial and devastating to a business. The clause should be deleted and where the Landlord refuses, you must consider the possible impact to your business.
17. Registration Of The Lease
If the term including options is greater than 3 years, you should require the Lease to be registered on the title. If the Lease is not registered, then a purchaser may not be required to recognise the Lease.
18. Personal Insurance
As the Lease is a considerable financial commitment, you need adequate personal insurances to meet all financial obligations in the event that accident or illness prevents the business from operating as intended.
19. Retail Shop Leases Act
After you receive the Landlord’s disclosure statement and before signing the lease, you must give the Landlord: a disclosure statement, a financial advice report, and a legal advice report.
20. Obtain Legal Advice
As the information are merely some suggestions as to issues that ought to be considered, and every proposed lease must be considered separately, you should obtain legal advice prior to committing.