Four things to look out for with commercial lease agreements
1. Retail lease or general commercial lease?
Every Australian state and territory has specific legislation relating to retail leases. This legislation is designed to provide additional protections to retail tenants, and impose a range of obligations on commercial landlords, when compared to non-retail commercial leases.
As soon as you’ve decided to enter into a commercial lease you should check whether the relevant retail leasing legislation applies.
Your commercial leasing lawyer will of course be able to assist, but this is something you should keep an eye out for yourself.
2. Term of the lease and options
One of the most important clauses to keep an eye out for when entering into a commercial lease is the term of the lease, and any options to renew the lease. It’s generally in the landlord’s best interests to ask for a longer initial lease term (for example five or 10 years), whilst the tenant is likely to be keener on a shorter period (three years is a good standard).
A start-up tenant is likely either to go out of business, or expand rapidly and need to move to larger premises, so is further incentivised to agree to only a short lease period. Obviously the type of property being leased, as well as the location, will have an effect on the term of the lease each party would like best.
Make sure you also take a good look at the options clause. An option allows the tenant to continue leasing the property at the term of the lease for a predetermined amount. It’s generally in both the tenant and the landlord’s interest to include an option clause, giving the landlord potential greater security of income, and the tenant the ability to make longer term plans for their business.
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