10 steps for tenants for a favourable lease:

Here are some valuable steps that you should consider before you sign a lease.

Contact us to ensure your new lease is the best fit for your business.


LEGAL ADVICE:

Seek legal advice as early as possible. Once you pay a deposit, occupy a premises or sign a lease, it is too late. Do not be fooled by the statement that the documents are ‘standard’.

NEGOTIATE:

Ensure you negotiate before agreeing terms. Have your solicitor assist you from the beginning. You could save money by taking into account the tips listed here.

Lease negotiation topics to consider include:

OUTGOINGS:

Ensure you review the estimated outgoings for the premises. You can request that these outgoings be limited to the ratio of lettable area. For retail leases, the outgoings will be outlined in the Disclosure Statement.

INCENTIVES:

Consider if any incentives can be provided. Examples include:

  • A rent-free period can assist you especially while you fit out the premises or get your business ready for trade.
  • A monetary contribution can assist with your fitout. It is sometimes possible to request that the landlord pay for some of your fitout.
SECURITY:

The landlord can require you to provide security as either:

  • A personal guarantee; and/or
  • cash bond; or
  • bank guarantee
"Exercise caution before providing a personal guarantee as you could risk losing your house or other personal assets. Where possible, avoid an unlimited personal guarantee."

As an alternative to a personal guarantee you could suggest providing a cash bond or bank guarantee. Many landlords can still request this together with a personal guarantee.

You may prefer to provide a cash bond instead of a bank guarantee as there is no need to deal with the bank. Further, the money is held by a scheme and if a dispute occurs they will hold onto the money until the dispute is resolved. In contrast, if you provide a bank guarantee, the bank must still pay the money to the landlord under the guarantee regardless of the merits of the landlord’s claim.

ADDITIONAL TERM:

If you will consider selling your business at a later date, try to negotiate a sufficient “option” term. An option term allows you to renew your tenancy for an additional term. This may be difficult to negotiate in some shopping centres.

We suggest negotiating a cap on the rental increase at the exercise of an option as the rent may increase considerably.

SOLICITOR COSTS:

Who is paying for the landlord’s solicitor costs?

  • Commercial Lease: It is generally accepted you pay the legal costs associated with the preparation of the lease, however you can request that each party pay their own costs.
  • Retail Lease: You are not required to pay for the landlord’s costs of preparing the lease. However, if you ask for changes to the lease you may be liable to pay for costs associated unless you negotiate that each party pay their own costs.
EXCLUSIVITY:

If the premises is in a shopping centre, the landlord may introduce a competitor that could considerably impact your business unless you negotiate an exclusivity clause. This clause can give you the sole right to conduct a type of business within the cluster of shops owned by the landlord.

ASSIGN OR SUBLET:

Ensure you are able to assign or sublet the lease if the premises becomes unsuitable during the term.

ANALYSE YOUR BUSINESS/PREMISES:

When you sign a lease you are committing to pay the landlord rent and other charges for the term as specified. Prior to doing this, ensure you do the following:

PROFIT:

Project your revenue and expenses before entering into a lease, including the length of time required to make a profit. Ensure the terms of the lease meet your needs.

TARGET CUSTOMERS:

Know your target customers including age, financial status, buying behaviours and habits to decide on the appropriate location.

LOCATION:

Speak to neighbouring tenants and ask them questions about the traffic of people in the area, main entry and exit points (if in a centre), why the previous tenant vacated and about business in general in the area.

CONDITION OF THE PREMISES:

Prepare a condition report before entering into the premises, including photos. Consider the type and costs of the fitout.

PARKING:

Consider where your customers and staff will park. If there are dedicated car spaces, ensure they are documented in the lease.

COMPLY WITH THE LAW:

The local council may require you to seek approval for the building, signage and/or parking and may also restrict how you use the premises. You may be able to negotiate that receiving the relevant approval be a condition before the lease is entered into. This will be documented in an Agreement for Lease.

Additionally, either party can be made liable to the other for damage suffered by a party entering into a lease as a result of false or misleading representations by the other party. Take care that the statements and representations made are correct and true at the time they are made.

"Make sure you comply with any laws to conduct your business."

REVIEW AND EXECUTE THE LEASE:

Have a solicitor review the lease and have it correctly executed. Do not rely on any oral statements from the landlord or leasing agents that are not documented. Ensure that these statements are properly recorded in the disclosure statement or lease before executing.

RETURN LEASE TO LANDLORD:

In addition to the signed lease, the landlord will generally require you to also return:

For retail leases
  1. Cheque for registration of the lease;
  2. Cheque for solicitor fees. The only fees that the landlord can claim are for amendments made to the lease and not for drafting the lease itself;
  3. Signed Lessor’s Disclosure Statement;
  4. Signed Lessee’s Disclosure Statement;
  5. Bond or bank guarantee. The bank guarantee must correctly state the landlord and premises; and
  6. Certificate of Currency (copy of insurance).
For commercial leases
  1. Cheque for registration of the lease;
  2. Cheque for mortgagee’s consent fee;
  3. Cheque for solicitor fees;
  4. Signed associated documents such as Agreement for Lease;
  5. Bond or bank guarantee. The bank guarantee must correctly state the landlord and premises; and
  6. Certificate of Currency (copy of insurance).

REGISTRATION OF THE LEASE:

If required, the lease will be registered on your behalf, by the landlord. The registered lease executed by the landlord will be returned to you.

FITOUT:

If the lease allows you to do a fitout then you must ensure you comply with the terms of the lease.

You are generally liable for landlord’s works on the premises that enable your proposed fitout. It’s important that the specification for the works are clear. In NSW, the retail legislation provides that you will not be liable to pay more than the maximum amount (or a formula for its calculation) agreed in writing for the works before the lease is entered into. (Please obtain advice relevant to your state.)

EXERCISE AN OPTION:

If your lease allows for a further term, make sure you exercise the option during the time specified in the lease. The lease may also specify that the request be in writing. To ensure you comply, it is best to ask your lawyer for advice.

If the option rent is at market price, then we suggest that you obtain appropriate information about the market price for rent.

END OF LEASE:

At the end of the lease the following will generally occur:

  • You will reinstate the premises to its original condition or as otherwise specified in the lease, excluding “fair wear and tear”; and
  • You will receive the cash bond or back guarantee back from the landlord, provided there have been no disputed breaches.
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