What to Consider when Entering into a Lease

Posted on.
By Watkins Tapsell.

Entering into a lease can be complicated, for both landlords and tenants. But by making sure a few matters are clear at the beginning, the process can be made much smoother. We recommend that, at minimum, you consider the following:

1. Term
What will be the term of the Lease and what options will be available for further terms? There will be expense in relocating your business. You should try and negotiate a term that will help maximise your potential to make back any money that you spend in relocating.

2. Rent and Outgoings and Turnover or just Rent
Is the Lease a gross lease or will outgoings be payable in addition to rent? Do you have to pay turnover rent? Turnover rent is common in shopping centres, where tenants have to pay a percentage of their turnover to the landlord.

3. Rent Review
What will be the method for rent review during the term of the Lease? (Usually CPI or a fixed percentage agreed upon between the parties).

4. Option term commencing Rent
What will be the method for review of the rent on exercise of the option/s? Usually this is market rent but can also be CPI or a fixed percentage. With retail premises you can have the market rent determined before you exercise your option.

5. Landlord’s responsibility for works
What works will the landlord be responsible for? Generally they will be responsible for the structure and keeping the premises weatherproof.

6. Tenant’s responsibility for works
What works will you be responsible for? Does the landlord require you to comply with a fit-out guide? Does the landlord have to approve the works before you can carry them out?

7. Fit-Out contributions
Will the landlord be providing a fit-out contribution? Sometimes landlords will provide an amount towards your fit-out, especially where it is a brand new building.

8. Rent free period
Will there be a rent free period? At the very least, you should try and get a rent free period for the time it will take to set up the premises for your use, that is to do your fit-out, so that you do not have to start paying rent until you can open the doors and commence business. If you are paying outgoings in addition to rent, will there be an outgoings free period to go with the rent free period?

9. Security Deposit
How much of a security deposit do you need to provide? The normal is between 1 and 3 months. Some landlords do not require a security deposit at all. If the rent is high on your lease and a 3 month security deposit is required then the security deposit will be quite high. Is it required as a cheque, or a bank guarantee?

10. Development Approval from Council
Do you require council approval for your use and works? If so will the Landlord agree to make commencement of the Lease subject to obtaining council consent?

11. Car Parking
Are there any dedicated car spaces included? Is there an additional fee for the car spaces?

12. Who pays for the lease
Who is paying the legal costs? Often each party pays their own costs. Otherwise if it is not discussed it will be assumed that the tenant will be paying the landlord’s costs, unless it is a retail lease.

With a retail lease the landlord is responsible for their own costs and the tenant is responsible for its costs. The tenant must pay the registration fees. As a general rule, the tenant will be liable for the landlord’s costs if it is a non-retail lease.
These can sometimes be quite high. A “cap” can be agreed on those legal costs, that is, how much the tenant will pay and anything in excess must be paid by the landlord.
Even if everything listed above has been agreed, it is important to review your lease in detail and obtain independent advice to ensure that the terms are in your best interest.

If you have any questions regarding puchasing or leasing property, please contact our Commercial Business and Property team.

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