WHAT TO CONSIDER WHEN NEGOTIATING COMMERCIAL LEASES

A commercial lease is a document that sets out the rights and obligations of the owner of a commercial property (known as the landlord or lessor) and a third party that has agreed to occupy the property (known as the tenant or lessee). A lease is a legal binding contract and can be complex and difficult to comprehend. It is essential that you understand all of the terms of the lease as it can contain commitments for many years to come.

There are different types of commercial leases that apply to different circumstances. The following are all forms of commercial leases:

• Retail Leases

• Commercial Leases

• Licences

• Assignments and Sub-Leases

The main issues to consider when drawing up a Commercial Lease Contract are:

1. Details of lessor, lessee and premises – Every Commercial Lease Contract should include:

   • The name of the parties;

   • the premises; and

   • inclusions and exclusions (car parking spaces, toilets, easement, common use areas)

2. Guarantors: having a Guarantor may be required by Landlords to guarantee the terms of the Lease. Where possible, directors should avoid giving personal guarantees unless required.

3. Bank Guarantee: This is usually 2 months rent and may be increased to 5 months in lieu of a personal guarantee from a director.

4. Term of the lease: This will be a fixed period and may include options to extend the lease.

5. Lease amount: This can be fixed or per square meter. The amount will increase by fixed percentage, CPI or market review.

6. Permitted use: This is crucial in any lease. This clause determines what business can be carried out in the leased premises as per the agreement. You may need to get Approvals for use prior to executing the lease. Town planning advice may be required.

7. Trading hours: This may be mandatory and should be checked to ensure that it is in line with the proposed use of the premises.

8. Common areas: These common areas include:

   • Stairways, escalators, and elevators;

   • Malls and walkways;

   • Common parking areas;

   • Toilets and restrooms; and

   • Gardens and fountains.

9. Maintenance and Repairs: This clause sets out the provisions regarding the maintenance of the premise. All the outgoing costs incurred every month and all the repairs to be done must be pre-decided by the parties before entering into the Commercial Lease Contract.

10. Sub-letting and assignment: You must understand whether you are permitted to sub-lease the premises as part of the lease. Sometimes consent of the Landlord is required and this clause should be checked to make sure that it does not conflict with the proposed use of the premises.

11. Dispute resolution: ensuring there is an arbitration clause ensures that all issues can be resolved between the parties without the need for litigation.

Negotiating the terms of the Lease should always be done on the basis that you do not wish to be bound until the Lease is actually signed by both parties.  You must reserve your right to require changes to the Lease if necessary.  However, some actions by the parties may mean the parties are bound prior to that time.  For example, we recommend you do not:

• accept access to the premises for fitout;

• pay rent; or

• commence trading.

prior to the Lease being finalised if you do not wish to be bound prior to the Lease being signed.

Wallace Law Group recommends consulting with a lawyer from commencement of the lease negotiations so that the any Heads of Agreement, Letter of Intent, Letter of Offer or similar documentation can be checked to ensure that there is no binding obligation prior to the execution of the documents.

Please contact Jaime Richards jaime@wallaceweir.com.au (1300 011 123) to discuss your commercial lease.