Tips From Commercial Lease Lawyers
A huge step for any new business owner is signing a commercial lease. A commercial lease agreement can be just as much of a minefield as the commercial real estate landscape itself, which is why engaging commercial leasing lawyers should be a given when leasing a commercial property.
We're experienced, Queensland-based Commercial Leasing Lawyers who are as passionate about your business success as you are, which is why we've put together this quick guide on what you need to know about commercial leasing.
What is a commercial lease?
As the name suggests, a commercial lease is a rental agreement over a commercial property such as an industrial site, warehouse or an office within a commercial building. What the name doesn't suggest though, is the range of leases that fall under the commercial lease banner, which aren't generally referred to as 'commercial leases'.
Subleases, assignments and licences are all forms of commercial leases. It may surprise you to learn that retail leases fall under the commercial lease banner, as well!
A commercial lease is a legally binding document between a landlord (or otherwise known as the lessor) and another party that's agreed to occupy or rent the property (referred to as the lessee or the tenant).
Why experienced lawyers are necessary when it comes to drafting a new lease
The complexity of these types of agreements comes from significant variations amongst lease terms, and variations according to whether it's for a retail premises or commercial property. On top of this, commercial leases don't have their provisions prescribed by legislation like retail leases do. Instead, the tenant's ability to negotiate for an even playing field is what determines the extent of their liability.
The legally binding nature of commercial leases, in conjunction with their complexity and the onus they place on the tenant's negotiating ability, is why you need an experienced team of commercial lease solicitors on your side.
At Bradley & Bray, we are a passionate and experienced local law firm who specialises in property law and commercial & business law.
What needs to be considered in a commercial lease agreement?
Both landlords and tenants need to be fully across their own responsibilities and obligations within their leasing agreement.
There are numerous considerations to be made with commercial lease agreements:
Research & Negotiation
Given that most of the provisions in a commercial lease come down to how well the tenant can negotiate, it's crucial that potential tenants make sufficient enquiries, conduct research including on the existing rental market and inspect the property before committing to any lease.
The negotiable aspects of a lease are generally the rent structure, the lease terms, inclusions and outgoings, as well as any assignment clauses. So the more information the tenant has, the better the chance of arriving at a satisfactory negotiation outcome.
The rights and obligations of both parties should be openly discussed, which may include:
The fit-out of the premises.
Permitted use of common areas.
The building rules.
Duration of the lease.
Any signage.
Whether there is an 'anchor tenant' and how that affects the lease conditions.
Clauses such as redevelopment (where the tenant should be compensated in the event the landlord commences major works on the premises before the lease ends, including demolition).
Good to know: If you require assistance when it comes to negotiating terms for your business, Commercial Leasing Lawyers can assist and advise by negotiating on your behalf.
Length
The duration of commercial leases typically range between three and five years. It's fairly common for landlords to push for longer lease periods as it provides them with more financial security, however, the lease term needs to work for you and your business trajectory.
Your situation could benefit from a shorter-term lease which might provide more flexibility and also reduce financial risk if your business is just getting off the ground.
Of course, like every negotiation within lease discussions, finding the right lease length is a balancing act between the landlord's needs and the tenant's needs.
Costs
Rent is the cost that immediately springs to mind, however, there are some additional costs that need to be factored in by a tenant.
Security deposits - similar to residential leases, a security deposit is required at the commencement of leasing commercially. A common security deposit is two months rental + your outgoings + GST.
Insurance costs
Any refurbishment costs
Maintenance and repairs
'Make good' provision costs (any costs associated with making sure that the property is in the same condition as it was when you started the agreement)
Legal costs - accessing the legal services of a commercial leasing lawyer does come with a cost, that needs to be factored in when understanding the costs to your lease.
More importantly, in South Australia, the Northern Territory (and in some circumstances, New South Wales as well), the landlord is permitted to pass their own legal costs for preparing the documents onto the tenant. This can be one of the hidden costs that go unnoticed but can be negotiated if commercial lease lawyers are involved.
Inclusions and outgoings
Commercial lease lawyers have a keen eye for making sure that all inclusions and outgoings are included.
Outgoings refer to any expenses that the landlord directly incurs as a result of owning the property. Inclusions simply mean anything that is included such as specific items in the fitout, parking spaces, storage and more.
Disclosure documents
Leasing involves more documentation than just the lease itself. In most states, the landlord is required to provide the tenant with a condition report on the property before signing anything. Other documents might include a heads of agreement, a lease incentive or even a contribution deed.
Businesses are often time-poor and frequently find it's in their best interests to take the advice from property lawyers who can provide legal guidance when it comes to leasing, disclosure documents and preparing a draft lease to approve.
Other clauses & options
There are a myriad of other clauses and conditions that may be included, and often require the guidance of commercial lease lawyers to know if they'll affect you or are relevant to your needs. Some of these include:
Default and termination clauses - which outline what is to occur when the lease ends and also what the course of action is in the event that the tenant defaults on their payments.
Subleasing & Assignment - if the tenant wishes to sublet the space out to another business, the landlord needs to be notified. The lease dictates whether this is available or not.
Keep in mind: If the tenant is a company, and there are amendments to the company structure, this may automatically trigger any subleasing or assignment clauses. Unless these form part of the lease, then this would be a breach of your leasing contract!
Renewal Options - The option to renew can be an important one, as it gives the tenant the option to extend the lease term. The benefit of including this option is that it avoids the additional financial burden that comes with renegotiating fees. It also, understandably, reduces the costs involved in moving the business to another location, and prevents business disruption (which can also be costly to your bottom line).
The difference between residential leases and commercial leases
Considering we mentioned earlier that retail leases are considered to be a form of commercial lease, you may be wondering what the difference is between retail and commercial leases.
Commercial premises differ from retail shops as they come with additional obligations such as building requirements, permits and zoning. Retail leases apply to retail premises where the tenant business is selling goods or services. A commercial lease, as we've detailed, is for leasing commercial properties with no retail activity.
The relevant legislation that covers those with a lease on a retail shop, and consumer law, don't apply to leasing commercially, which is why getting advice from a lawyer can help protect you from financial disaster.
When should you engage commercial lease lawyers?
Many businesses can think that they only need to engage commercial lease lawyers when commercial lease disputes arise. While lease lawyers are well versed in handling commercial leasing issues between landlords and tenants, the resolution process often begins by referring to the lease itself; which makes it vital to have a robust lease document in place to start with.
Commercial leasing is an ordinary occurrence that involves extraordinary consideration and complexity. That's why it's best to access the services and legal advice from a commercial leasing lawyer before you sign your contract.
Seek legal advice before leasing matters turn tricky, by accessing the extensive experience of our commercial leasing lawyers at Bradley & Bray.
With over 45 years of experience in providing legal advice to businesses and clients alike, you can be rest assured that we have a professional and friendly lawyer for commercial lease with your best interests at heart and will equip you with the legal services, advice and support to assist you through the entire process.
With offices in Nambour and the Sunshine Coast, we encourage you to find out more about how an experienced commercial leasing lawyer at Bradley & Bray can help you today!
This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers takes no responsibility for any use of the information provided in this article.
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