If your business is growing and the next step is finding suitable commercial premises, then it’s important to make sure you are not caught out with a lease that is overly onerous or unfavourable to you as the tenant.
The first thing to remember when entering into any commercial lease is that, unless it is a retail shop lease, then the standard starting point is that as tenant, you will probably be taking all of the risks and liabilities associated with the premises as though you owned them yourself.
That means there are some very important things you need to be aware of when negotiating a lease for any commercial premises.
- Any lease will generally be in the landlord’s favour
It is best to have a lease document reviewed to ensure that it is not unnecessarily favourable to the landlord, but most standard leases will still be in the landlord’s favour. So it is generally better to focus on negotiating key points in the lease that matter most to you and will have the most impact on your business.
- You may be asked to make personal guarantees
If you set up a Pty Ltd company to protect things like your personal assets and family home, then going guarantor for your company as tenant will undermine this goal. Being guarantor for your company as tenant means that you are personally guaranteeing that the company will perform all of its obligations under the lease and if it does not do so, the landlord can claim against you personally for debts, damages or losses of the landlord.
- You are probably going to be responsible for the insurance
Make sure you speak to your insurance broker about whether or not you can obtain the appropriate insurances for the premises, and what the costs of doing that will be. As mentioned above, you are most likely going to be assuming all of the risks in the premises as if you own them, so make sure you can insure against those risks.
- You will be taking the property in its current condition, so inspect the premises
Before you sign a lease or offer to lease, inspect the premises and make sure that any issues you have with the Premises are addressed or made a special condition in the offer to lease that they will be attended to prior to the commencement of the lease.
- Every clause in your lease is important, make sure you understand it
Read your lease carefully. As mentioned above, the lease will be favourable to the landlord. If you do not understand your lease, get your lawyer to explain it to you. A lease is likely to lock you into the premises for a long period of time, so make sure there are no hidden surprises or costs.
- There are some things you can do to protect your interest in the premises
As you’re going to be building goodwill that will attach to your premises, you should make sure you have protected your interest in them. There are several things that you can do if your lease provides for them, like negotiating options to renew, lodgement of caveats and registration of the lease. But all of these things need to be done in a certain way, so once again, make sure you have protections in your lease and that you understand how to use them before signing.
It is generally accepted that a landlord will pass on much of the risk of the premises onto the person actually occupying them but that doesn’t mean there aren’t steps you can take to ensure that you have the best possible commercial leasing situation that works for your business and protects your interests.
If you are considering entering into a new commercial lease and would like your lease to be reviewed before you sign an offer to lease, please contact us at Lynn & Brown Lawyers on 9375 3411 or https://www.lynnandbrown.com.au/contact/
About the author:
This article has been authored by Steven Brown from Lynn & Brown Lawyers. Steven is a Director and has over 18 years’ experience in legal practice and practices in commercial law, business law and estate planning.