A lease is a legally binding document between a tenant (known as the lessee) and a landlord (known as the lessor). A lease allows a tenant to occupy an area – like a whole building – or a part of an area – – like a shop front in a shopping centre – which are usually known as the premises. It is essentially like renting an apartment but is a little more complex in the commercial property space. For startups, your first premises could be an office space or a shopfront. It can be a daunting process as you are locking yourself or your business into a lease, requiring you to make enough money to pay rent.
In different states and territories there are certain requirements under legislation that separate ‘commercial’ and ‘retail’ leases from one another. Generally, ‘retail’ leases only apply to those businesses that fall into the scope of a ‘retail’ lease as defined under legislation. For instance, a café will generally have a ‘retail’ lease in Queensland and will fall under the Retail Shop Leases Act 1994 (Qld). The primary difference between a ‘commercial’ and a ‘retail’ lease is that ‘retail’ lease legislation tends to be more tenant friendly, due to the lack of bargain power between retail tenants and larger property developers.
While each lease will have a unique set of terms and conditions, there are some standard provisions in most lease documents. These include:
- how much rent you will be required to pay (usually as an annual figure).
- the length of your initial lease term and whether you can extend or renew the lease for a further term after the initial term of the lease expires.
- how the rent will be reviewed each year (i.e. CPI increase, fixed percentage increase or another method).
- what your approved ‘use’ of the area will be under the lease, such as ‘café and takeaway restaurant’ or ‘commercial office.
- your lease area and whether that is within a larger building (known as a ‘part of land’ lease) or an area which includes the whole of the building (known as a ‘whole of land’ lease).
- your obligations and responsibilities when it comes to paying outgoings that apply to your area (outgoings are the Landlord’s expenses for running and maintaining the property, such as water and council rates).
- the landlord’s obligations and responsibilities when it comes to maintenance and repairs to the area and building, such as air conditioning and other works required to the building (known as capital works).
what tasks that you have to carry out when the lease ends (usually includes a requirement to bring your lease area back to its original condition).
- whether you are required to pay a security deposit/bond or provide a personal guarantee (if you’re a company) to satisfy the landlord you will be able to meet the obligations under a lease.
- other items such as whether you can use the area after hours use, who can park in common area carparks, whether you are entitled to external signage and to what extent that you can fitout and decorate your lease area.
Each lease is different, so it is extremely important that you seek legal and financial advice before you sign any sort of document with a leasing agent or landlord – even if you are signing a ‘Letter of Offer’ or ‘Heads of Agreement’ document.
Once you have found a space that you like and spoke with the leasing agent, you can then expect to start negotiations around leasing terms. The landlord’s legal team will prepare a lease document and you will get your own legal and financial advice about its terms and how they will affect you. Usually both legal teams negotiate your amendments and amend the lease document as negotiations progress to signing. Retail leases have specific requirements when it comes to a landlord’s disclosure to a tenant – the laws usually require a ‘grace period’ of around 7 days after a tenant receives a draft lease before signing can occur.
If you’re looking to enter into a lease, the team at Bolter can arrange a review of that lease document to ensure that you’re completely aware of what you’re signing. Leases can be for a long time, so we can have your back, while you focus on planning ahead.