COMMERCIAL LEASES - TIPS
Commercial leases come in varying shapes and sizes and in Queensland and are governed by numerous pieces of legislation depending on the type and nature of the lease.
Before the execution of a lease, you must not only understand the legal framework which applies to your lease, you must also be aware of the essential terms within a lease so that you can negotiate the best lease terms for you and and your business. It is essential that you speak with a lawyer before you execute the lease or the agreement to lease so that you understand the legal implications of the documents that you are signing.
WHAT TO CONSIDER WHEN NEGOTIATING TERMS
1. The parties to the lease
Depending on the manner in which you operate your business will depend on the name of the lessee. If you run your business as a sole trader, then it is likely that you will be the tenant in a personal capacity. If your business operates through a company, your company is likely to be the tenant. In addition to your company being the lessee, the landlord may also require personal guarantees from those involved in the company. You should always seek guidance before providing any personal guarantees in lease as a solicitor can assist you in negotiating terms which do not require those personal guarantees. You also obtain some guidance on the impact of being a guarantor under a commercial lease. Generally speaking, if you provide a personal guarantee for the company, the lease holds you personally responsible for any of your company’s defaults under the lease.
The landlord will be legal owner of the property. It is important that title searches are carried out to ensure the correct parties are detailed in the lease. If the property is not owned by the landlord, you should find out who does own the property. Otherwise you could be unwittingly entering into a sub-lease agreement, which comes with slightly different rules. Your sub-lease will likely be subject to the head lease which may impose additional responsibilities on you in favour of the head landlord.
2. Use of the premises
Each lease will detail what business use is permitted to be carried out at the property. You should check the permitted use (also called’ business use’) in the lease and ensure this correctly identifies what you want to use the premises for. You should also check with your local council and solicitor to ensure that your use of the property is permitted at law.
3. The rent
Negotiating rent is an essential part in the lease negotiations. It’s good to remember that an agreed rent as stated in the lease will change during each Term of the lease. It may change by an agreed percentage, CPI or market review.
4. Factor in the outgoings
In addition to rent landlord’s will sometimes al requires a percentage of outgoings to be paid. Theses are the additional day-to-day expenses you must factor into your costings, over and above the rental. These outgoings include charges for rates, utilities, insurance and maintenance. It is important to carefully read the list of outgoings in your lease. If there are outgoings that don’t apply to your leasing situation they should be detailed as excluded outgoings within the lease. If you only lease a portion of the property, then you will pay a percentage of the outgoings.
5. Who pays the costs for leases?
In most cases, the parties pay their own legal fees for the signing of a lease and documenting any changes such as rent reviews or renewals. If you don’t meet your obligations under the lease, your landlord can recover any expenses incurred in enforcing their rights from you.
Signing a commercial lease is a significant commitment and there is a great deal to consider before you sign on the dotted line. You need to get legal advice early so that you are not bound to any agreements before the lease negotiations are finalised.
If you’d like some guidance on your commercial lease, Wallace Law Group (jaime@wallaceweir.com.au) can help tailor your lease to suit your business goals.
