Are you planning to upscale and expand your business activities? Maybe you’re a small business owner moving into a premises for the first time. If you’re looking for commercial property for any type of business, you’ll need to sign a commercial property lease.
Before you put pen to paper, you must understand the terms of your lease and secure a deal that’s in your best interests. After all, commercial property leases tend to be large financial investments and long-term commitments, so they’re not something you should enter into lightly.
In this article, we’re going to outline 10 key things to consider when reviewing a commercial lease. We’ll also explain why you should always consult with commercial lease lawyers before signing on the dotted line.
Types of Commercial Lease
A commercial lease is an agreement between a landlord and their tenant. Just like a residential lease, the contract outlines each party’s responsibilities and information such as the rental amount and the duration of the lease.
However, unlike residential leases, there is much more to consider with a commercial lease. For example, your lease may be retail or non-retail. A retail lease permits the selling of goods or services to the public from the premises. A non-retail lease would be something like a warehouse or office building, where commercial activity is undertaken without the direct sale of goods or services.
In non-retail commercial leases, the tenant is often expected to pay the legal costs of both parties, while retail leases usually require each party to cover their own costs.
Different business/property types that may be covered in a commercial lease include:
- Retail spaces
- And more.
What Are the Basic Inclusions in a Commercial Lease?
The following information is generally included in a commercial lease:
- Rights and responsibilities of the tenant (including what they can and can’t do)
- Rights and responsibilities of the landlord (including what they can and can’t do)
- How long the lease will last and options for lease renewal
- The agreed rental amount and when it needs to be paid
- The personal details of each party
- Any additional conditions
10 Things to Consider When Signing a Commercial Lease
Nobody is required to consult a lawyer before signing a lease, but legal representation is in the best interests of all parties. Partnering with commercial lease lawyers can help you navigate the considerations below and negotiate new terms where necessary.
Commercial lease lawyers can also identify and guide you through contract terms and conditions that are specific to your circumstances. The details of a commercial lease are often complex and require knowledge of contract law to fully comprehend. Even if you think you understand everything, consulting a lawyer can greatly benefit you.
Read on below to view 10 key considerations to review in a commercial lease.
1. Rental Amount
Tenants should ensure they are not overpaying based on current industry standards, while landlords should ensure they are setting an appropriate price with clear processes and timeframes for reviewing rent.
2. Making Rental Payments
All parties must understand how much rental payments are, when they are due, and the process for making rental payments.
Landlords must also stipulate the course of action if the tenant fails to pay or makes incorrect payments.
3. Understanding Other Costs
The lease should also outline who is responsible for other costs, including:
- The landlord’s legal costs
- Gas, electricity, water, and other overheads
- Waste collection expenses
- The cost of a bond (if there is a bond at all)
- Parties should understand when and how the bond will be returned, and why the bond would be withheld
4. Taking Care of the Premises
The contract should outline rules regarding fixtures, fit outs, and general maintenance. Who is responsible for organizing and paying for repairs and maintenance of different parts of the property? For longer-term leases, are tenants permitted – or even required – to renovate and refurbish the space?
5. Insurance Obligations
All parties should understand what kind of insurance the landlord must take out under the terms of the lease. Additionally, tenants should consider what additional insurance will be required.
6. Use of the Property
The commercial lease will outline what type of activities you are allowed to undertake on the premises. Tenants should ensure that the permitted activities incorporate the type of work they do.
Landlords and tenants should also consider whether subletting will be permitted under the lease.
7. Additional Requirements and Guarantees
Tenants/company directors may be required to commit to additional terms, conditions, and guarantees under a commercial lease. Tenants should understand exactly what these additional clauses require of them and how it impacts their business and their agreement.
8. Contract Renewals
If your commercial lease has an option for renewal (most will), the landlord will generally be required to offer an extension subject to conditions. Tenants should understand these conditions to ensure they retain the right to renew their lease.
9. Lease Termination
A commercial lease cannot be broken without consequences. All parties should consult with commercial lease lawyers to understand their rights and responsibilities regarding the termination of a contract. If an early termination clause cannot be triggered, parties may need to negotiate, which a lawyer can also assist you with.
10. Lease Length
In Victoria, you are entitled to a 5-year commercial lease made up of the initial term and lease renewal options. Tenants are also able to waive this right by signing a certificate.
Protecting Your Best Interests
You can sign a commercial lease in minutes, but the consequences for your business can last for many years. That’s why it’s recommended to take your time and consider all your options before signing a lease. Liaise with a team of commercial lease lawyers who understand the complexity of your contract and take the time to negotiate a lease that protects your interests as a tenant or landlord.
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