As many small business owners know, one of the most important assets of a business is its lease. A significant part of the business is goodwill and it often relies on where the business is located and how the business is contacted.
With this in mind, all business owners should take care to ensure that their lease affords them the greatest opportunities, whilst protecting against some of the risks that can be involved in taking on a commercial lease.
Most commercial leases provide for a term of between one and five years. The lease will often provide for options, allowing the lease term to be extended on one or more occasions.
Given the investment you make when entering into a lease, we strongly recommend that you take legal advice as to the provisions of the lease before signing it.
Joe and his former work colleague decided to go into business together. They signed a lease together as a partnership to take on premises for five years.
After two years Joe and his business partner had a falling out. As they couldn’t continue to work together they agreed between them that Joe would be bought out by his business partner. The business was handed over to the business partner and Joe found employment elsewhere.
Six months later, Joe was sued by the landlord of the premises, as he was never removed from the lease and his business partner had defaulted on the lease payments and gone bankrupt. Joe ended up having to pay out the rest of the lease as the premises couldn’t be re-let quickly.
Joe had purchased an ongoing business within a small shopping centre with a roaring trade. Business went well for six months until the landlord decided to redevelop the premises. Because the landlord had the power to do so under the lease, the landlord moved Joe’s business to a rear corner of the shopping centre without much passing by trade and as a result, profits fell and Joe’s business failed.
Joe started a new business and took a lease for five years with two options for further five year periods from his landlord. Joe’s business turned out to be a fantastic success. After two years of being at the premises, the landlord decided to sell the shopping complex to a large corporate property group.
Joe hadn’t taken advice on his lease and hadn’t lodged a “subject to claim” caveat against the property to protect his options.
When his first five year period expired, the new landlord required Joe to move out saying it had no notice at the time of buying the premises that Joe had two further options. Somebody else then moved into Joe’s premises, running a similar sort of business, and took a new lease from the landlord as well as most of Joe’s customers.
The above are just a few examples of ways in which your lease can make or break your business.
We strongly advise you to take legal advice in relation to any commercial lease that you wish to enter into. It is important that you take the advice before you sign any Agreements for Lease or Offers to Lease, as these can then restrict you from negotiating the terms of the final lease.
While it may seem hard to justify the cost and time involved in taking advice regarding a lease, there can be significant expenses that arise in the event of a dispute between you and the landlord. Some legal advice now could save you thousands of dollars later.
Think of it like an insurance policy – in business it really is better to be safe than sorry.
We review your documentation and will then revert to you with advice and a pricing proposal for the work to be completed.
You should also talk to your lawyer about lodging a caveat to protect your interest in the lease.
You may also wish to consider your partnership agreement and other issues relating to your business at the same time.
Please contact us to make an appointment to discuss these and other matters that may affect your business.