Five Reasons Why You Should Have Your Commercial Lease Reviewed
Tuesday, September 24, 2019
From rental review dates to fitout contributions, the statement ‘commercial leases can be complicated’ is underrated.
Commercial leases typically extend over a significantly longer period than residential leases, and can be up to 30 years in length in some cases (including option periods). It is important that prospective tenants are aware of all the costs and risks associated with a lease before signing on the dotted line.
1. Standard contracts
Many landlords use standard contracts which include general terms. It is critical that tenants ensure that all terms in a lease are applicable and that the lease genuinely represents the entire agreement between the parties. Tenants should keep in mind that leases are typically written by the landlord’s lawyers, to favour the landlord.
Simple mistakes such as an incorrect date, term or percentage can easily occur and are easy to spot. However, when it comes to obligations and risks, mistakes can be tricky to identify when reading through a long document filled with complex legal language.
Legal practitioners have the required skills and knowledge to cut through complicated ‘legalese’ jargon and identify when your obligations are being supported or let down by a lease. They can also suggest certain clauses be inserted to provide you with additional protection.
2. Maintenance and ‘Make Good’ Obligations
Typically tenants are required to maintain and repair the premises. But what happens when equipment or systems are shared between the tenant, landlord and other tenants? The contract should articulate who bears the responsibility of maintaining certain systems, such as air-conditioning, to avoid expensive disputes down the track.
‘Make good’ obligations are also a source of disputes, as they require a tenant to make good the leased premises, which often means returning the premises back to the same condition when the lease commenced. That can be an enormous job if the lease runs for over 15 years.
It is critical that ‘make good’, repair and maintenance obligations are properly articulated to ensure the tenant does not bear unforeseen obligations and expenses, and to avoid costly disputes. By reviewing such clauses, legal practitioners can ensure that obligations are adequately described and each party is protected.
3. Rental Clauses
Understanding all of the costs associated with a lease is essential when determining whether entering the lease makes sense financially. It also assists tenants to better understand their position, prior to attempting to re-negotiate rental conditions with landlords.
Commercial lease reviews by legal practitioners ensure that tenants are thoroughly informed of apparent costs and other less so obvious costs – such as annual rent reviews. Annual rent reviews may permit landlords to annually nominate a new ‘market rent’ be payable, and tenants automatically accept this amount, unless they notify the landlord within a nominated time period of their refusal. Alternatively, annual rent reviews may mean the rental amount increases by set percentage each year, which may result in a tenant paying significantly more than the going ‘market rate’ in years to come. These clauses should be properly understood by both parties before the lease is signed, but that is not usually the case.
4. Competitor proximity
So you’ve just signed the lease, started to complete the fit out of your new premises, and you see a similar shop opening in the same complex. What can you do?
The answer depends on whether you have an exclusivity clause in your contract.
Exclusivity clauses generally prevent a landlord from allowing a tenant with a similar ‘permitted use’ from operating within a complex. This can be crucial where a complex consists of a small number of businesses.
For example, if you own a café in a complex of five premises and another café opens in one of the other four premises, it’s likely to have a significant impact on your business.
Legal practitioners can identify if an additional clause is required to protect your interests and will assist you in negotiating and drafting such a clause.
5. Outgrowing the premise
If you are a small business with plans to expand, it is critical that you know what your options are in the event that the premises become unsuitable.
A commercial lease review will provide you with information on; whether you can assign the lease, sell your business or sublet under the contract and the processes involved. For a small cost of the total price of the lease, it will identify the major trip hazards that could cost you many thousands of dollars later if not properly understood and negotiated.
Our legal practitioners have the necessary skills and knowledge to identify, review and communicate (in language you understand) your rights, responsibilities, risks and costs. A review will ensure that you are informed and understand your position before deciding to sign.
To discuss your commercial leasing matter please feel free to contact one of our experts today. We have offices located in Brisbane, the Gold Coast and the Sunshine Coast.
Call: 1300 334 566
Fax: (07) 3343 8664