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Commercial leasing is often not given enough scrutiny until it is too late. Areas where we typically see issues arise are either when the lease is about to conclude or if our client is looking to terminate the lease and they are not aware of their obligations. This usually comes from not properly understanding the terms of the lease and not having a lawyer thoroughly check for unfavourable terms before signing.
To avoid getting caught out by disadvantageous terms, here are our top 5 considerations when looking into a commercial lease.
It may seem pretty silly to say but signing a lease is not something you want to rush into. Often there are terms that get over looked when people get excited at the prospect of signing their first lease.
Sometimes people feel like they must jump at the first chance they get because they may not find something like it again. I can almost guarantee you that you will find something like it again, maybe even better! Depending on what you are looking to lease, it is not unreasonable to give yourself at least 6 months to research what kind of space you’ll need for your business, actually finding what you’re looking for, negotiating the terms of the lease and finally signing.
The first part of this process, research, should be the timeliest part of this process. Once you have a clear idea of what you need, you’ll be in a better position to hone in on properties that meet your plans. Again, it may seem alarmingly straight forward to consider this but it is all too common for people to get too excited that they have found what they think is the perfect space and then sign a lease that has very prohibitive terms. Take a step back and make sure that you have a solid understanding about the lease before signing.
You’ve struck gold! You’ve found a space you’re happy with and you think the terms of the lease are satisfactory but you’ve signed the lease with the commencement date being 30 days from the day of signing. The first issue is that you realise you haven’t factored in that you’re going to have to do a reasonable amount of fitout to be able to use the space which might take at least 6-8 weeks to complete. This comes back to my first point, make sure you give yourself enough time so that you can factor in things like having to fitout the premises.
During the negotiation period, you may be able to request some type of concession for the fitout period be it rent free or half rent. However, this will ultimately come down to the landlord’s discretion and you’ll have to be prepared that you may not get any rent concessions during this period. To be as prepared as possible, make sure that you make some enquiries with professional fitout specialists regarding how much their services may be to fitout the approximate size of the space you are looking lease and how long they think it will take. With this information, you can then go back to the landlord and try to negotiate payment of rent around this timeline.
Not all agents will do this but unfortunately there are some agents that will use tried and tested aggressive sales tactics to make inexperience tenants sign on the dotted line before taking a moment to really consider that they are entering into.
This is a particularly easy trap to fall into and you should not be bullied or intimidated into rushing into signing. Again, the first place you find to lease will not be the only place you’ll be able to lease. You’ve spent weeks perhaps even months researching and getting yourself ready to find your space and then suddenly you find yourself negotiating with someone wanting you to throw caution to the wind. It is important that you do not let your emotions get the better of you.
More importantly, you have the right to take time to consider the contract and to have a lawyer look over the documents before you sign. Don’t feel like to you need to simply sign the contract in order to make sure that someone else does snap it up. Be sure that you are happy with the terms first and foremost.
It is a near certainty that the first draft of the lease you see will be prepared to be in favour of the landlord, especially when it comes to exit clauses. However, don’t be put off by this. It is simply a starting point at any lease. There are very few clients that give proper consideration to what will happen if they need to terminate the lease early or simply what their obligations are at the end of the lease.
If you are unsure about these terms, have a lawyer review and negotiate on your behalf to make sure that any exit provisions that are included are reciprocal and that the ‘make good’ provisions in relation to fit out work or renovations are not too onerous.
All too often we are contacted by people saying that they have just signed a lease or are about to sign a lease and whether we can have a look over the document to make sure everything is ok. There are a couple of issues with this approach.
First, in the instance where you have not signed the lease, as you would have already spent time negotiating terms and now wish to have your lawyer get involved and possibly prolong the process the landlord will likely be frustrated that the lease is still not signed. This will make negotiating any further changes particularly difficult.
Second, in the event where the client has signed the lease (and disclosure statement if it is a Retail Shop Lease), it is even harder to negotiate any further changes as the landlord is under no obligation to grant any further concessions.
First thing you should do when you decided to commence looking at leases is contact a lawyer that actively works with commercial leases. Once you are in possession of the draft copy of the lease (if applicable), forward it to your lawyer immediately so that they can review the document and provide you with their advice. Once you have a clear understanding of the terms of the lease, you can have your lawyer negotiate terms on your behalf to ensure that you get the best possible outcome.
If you are considering renting a commercial space, feel free to contact us to discuss your options.