1. BEFORE YOU START
- When negotiating the terms of the Lease, ensure you are not bound until the Lease is signed by you and the Landlord.
- When submitting an Offer to Lease, reserve your right to require changes to the draft Lease document if necessary.
- As some actions may mean that the Tenant is bound prior to signing a Lease, do not accept access to the premise for fit out, pay rent, or commence trading until you are completely satisfied with the lease document.
- Where you have been provided information by or on behalf of the owner regarding the property or the lease and you are relying upon that information being correct, this information must be included in the lease document.
- Make a record of the state of repair of the premises before signing the Lease, and, at the commencement date of the Lease. This may include photos of the premises (preferably with a date/time stamping).
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);
- financial and taxation advice about the operation of the business intended to be carried on.
3. CALCULATE THE TOTAL FINANCIAL COMMITMENT
- 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 have business partners who have less financial resources or whose financial affairs are well structured, you may be liable for the entire debt where the business fails. Whilst you would have a right to pursue your partners, it may be akin to getting blood out of a stone!
4. FUNDS REQUIRED AT THE COMMENCEMENT OF THE LEASE
The Tenant should ensure it has adequately budgeted for all expenses, including a contingency amount for unexpected costs.
The costs payable by a Tenant when leasing premises may include the following:
- The Landlord’s legal costs of negotiating & drafting the Lease document (not a retail shop lease)
- Where the Lease is to be registered on the title deed: > the registration fee for the Lease (currently about $140) > the costs of obtaining mortgagee’s consent (where applicable) > the costs of a survey plan (where part of a larger property)
- A Security Deposit (for rental payments) is usually payable, and is often equal to 3 months’ rent plus GST.
- Insurance policy
- The Tenants legal costs and outlays