We can assist lessors and lessees with their commercial and retail leasing requirements in a number of ways, including:
- Drafting and reviewing retail and commercial leases
- Negotiating lease terms
- Subletting of premises
- Transfer and assignment of leases
- Advice on warranties and guarantees associated with leases
- Commercial leasing disputes
Commercial leasing basics
A commercial lease is a legal agreement setting out the terms and conditions through which a lessee (tenant) occupies premises owned or controlled by a lessor (landlord) to run its business.
In exchange for paying rent and upholding the obligations under the lease, a tenant is entitled to uninterrupted possession of the premises and is free to conduct its business in accordance with the permitted use. A commercial lease may relate to any non-residential premises such industrial, retail, factory, or office space.
If you run a business or own commercial premises and are considering entering into a leasing arrangement, it is important to have a written lease agreement to formalise your negotiations and outline the agreed terms. The terms should be clear and unambiguous and cover obvious matters as well as a range of contingencies for unforeseen events such as what happens if the premises is damaged or destroyed. Typical lease terms include, but are not limited to:
- The parties and property.Parties entering a lease need to know who they are dealing with. Title and company searches may be obtained to confirm that the parties are accurately described in the lease and legally entitled to enter the transaction.
- The leased area. The lease should include a legal and physical description of the premises, as well as a plan highlighting and indicating the size of the leased area. Use of car spaces, storage facilities and amenities should also be noted.
- Permitted use of premises. The lease should state the permitted use of the premises. The tenant should also ensure that the proposed use of the premises complies with any Council or other requirements and any necessary licences are obtained.
- The term of the lease. The term of the lease and any renewal options should coincide with a tenant’s business plans and a landlord’s plans and investment strategy for the property.
- Leases containing options to renew will specify a time period within which a tenant can exercise (give notice) to renew the lease. Option periods should be diarised to avoid missing out on the opportunity to renew.
- The lease should state who is responsible for the property’s outgoings and list the relevant items. Outgoings include utility services, rates and taxes, cleaning, gardening, and security. A tenant may be responsible for all, or a proportion of outgoings and an estimate of these costs should be obtained by the tenant before entering the lease.
Certain expenses may not be recoverable as outgoings if the lease falls under retail leasing legislation. For those that may be recovered, landlords must give tenants an itemised list of outgoings and the method of calculation.
- Rent and rent reviews. The lease will contain details of the rent, the frequency and method of payment and when and how a rent review may take place. Rent reviews may be by reference to the Consumer Price Index, market review or a set percentage on each anniversary of the lease.
- Fitout and refurbishment – negotiations regarding fitting out of the premises must be clearly stated and include the types of fixtures and fittings to be installed, who is responsible for the work, approval requirements, and any obligation to restore the premises at the end of the lease.
What is a retail lease?
If the premises being leased is classified as ‘retail’ then the landlord/tenant relationship will be governed by the Retail Leases Act 1994 (NSW). Key objectives of retail leasing legislation include enhancing transparency during negotiations, ensuring landlords provide prescribed disclosure information to prospective tenants, and streamlining some of the key features of retail leasing.
A ‘retail shop’ typically includes premises used as a shop (selling, hiring, or providing goods and services to the public) and/or premises situated in a retail shopping centre. There are some exceptions for certain premises, so it is important to determine the status of the premises to ensure that the correct negotiation processes are followed, and the lease complies with the provisions under the Act.
Avoiding leasing disputes
A commercial lease entails a long-term financial and business commitment. With many leasing disputes arising from ambiguous terms or misunderstandings between the parties, it is wise to get legal advice before committing to the transaction.
Parties must understand their rights and obligations with respect to insurance, attending to repairs and maintenance and contributing to capital works. Provisions to assign or sublet the lease, should the tenant seek an early release from its obligations, should also be considered.
Disputes regarding outgoings and what constitutes repairs and maintenance are usually resolved by interpreting the terms of the lease – careful drafting when preparing the lease may reduce costly misunderstandings down the track.
We have extensive experience in commercial leasing matters and will guide you through the process to achieve a fair arrangement and to ensure you are aware of your rights and responsibilities.
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