Leasing: Essential matters to note before you sign
19 May 2016
- Business Law
Finding the ideal premises for your business is no easy task. From location to amenities, there’s so much to consider from a practical point of view that the legal considerations can often be forgotten. It is important, though, not to lose sight of the legal consequences of signing a commercial lease and make sure you enter negotiations with a clear picture of your requirements and priorities.
Here are some top tips to arm you in your negotiations:
Remember: a commercial lease is a long term relationship
The landlord and tenant may not come into contact too often during the life of a lease but there is no denying that this relationship can impact your business’ future viability. You want to ensure you can work with, get along with and, if necessary stand up to, your landlord.
Make sure you meet with the landlord’s representative if you can, not just an agent. It’s important to get a feel for the person who will be in the picture long term.
The lease will be governed in most cases by the Leases (Commercial and Retail) Act 2001, which attempts to protect tenants while striking a commercial balance between the interests of the landlord and the tenant. It is important to note that Landlords may not act outside of the boundaries of the Act.
Understand the full picture when it comes to what your commercial lease will cost
A lease costs more than the ‘per square metre’ rent advertised. Make sure you have a clear picture of what the rent per annum is, and what extra costs you may be required to pay.
Outgoings, for example, represent the amounts payable by you for building expenses (if relevant) which could be charged in addition to the rent.
Further, you’re likely to face a rent escalation of some description (usually a fixed percentage increase on each anniversary but sometimes a market review). In addition to this, there are the other lease establishment costs. Do you have to fund a cash bond or bank guarantee? Is rent paid upfront?
Finally, is there any relief or incentive offered to you as tenant? Some landlords will offer a rent-free period or a contribution to your fitout. Don’t be afraid to ask!
Know what the fitout requirements involve
Chances are you’ll want your business to look its best. The landlord will too, no doubt. But before you pick up the paint brush or nail-gun, check whether the lease requires landlord’s consent to any alterations or additions.
And also be aware of the tenant’s obligation to ‘make good’. At the end of the lease will you have to remove any fitout? Itis likely you will have to restore the premises to how they were on the day you took occupation.
What rights will you have to assign or sublet the lease?
Tenants may want the flexibility to assign their lease if they decided to sell the business. Further, companies should negotiate the ability to sublease or assign the lease to allow for mergers, reorganisations, and shared ownership changes. Usually this is allowed provided you seek the landlord’s consent.
Who is responsible for repairs and maintenance?
Finally, make sure you know which repairs are your responsibility as tenant (usually general maintenance) and which are the landlord’s (usually structural repairs).
Renting a commercial property is a business transaction, and you should make the decision carefully, with professional assistance. After salaries, the cost of your business lease is likely to be the biggest overhead you have. A commercial lease usually involves a long-term commitment, so it is absolutely critical to get the right premises on the right terms, or it can prove to be quite a costly exercise.
If you would like advice about a commercial lease, as either Landlord or Tenant, please contact a member of our commercial property team today.