Entering a commercial Lease is a big decision and you should be prepared for your responsibilities under the Lease. Whether you are a landlord (Lessor) or a Tenant (Lessee), our Commercial Property solicitors can assist in drafting a commercial lease on your behalf or advising you on the content of a Lease you propose to enter into you.
If you are a prospective tenant, the terms of the lease need to benefit you and your business. Your premises should be a reflection of your business and an asset of your business, not a hinderance. Think in advance about what type of premises you need to improve your business, is it a shop front on the main street, or a warehouse type of premise; do you need passing trade or is the majority of your business conducted online? If you need a shop front, what image are you trying to portray? Once you have asked yourself these important questions, you are in a position to look for premises and to negotiate your lease. Once you are ready to negotiate your lease our Commercial Property lawyers can assist. We know what common obligations landlords and tenants are prepared to accept and can advise you of the standard positions
If you are a landlord, you want to be sure that the person to whom you lease your premises will pay rent on time, will take care of the premises, will protect the reputation of the premises and not upset the neighbours. In choosing the right tenant our Commercial Property lawyers can assist you in asking the right questions. We know the standard disclosures and references sought by other landlords before accepting tenants and signing a commercial lease. We know the standard positions offered by other landlords and can advise you on what terms and conditions are considered to be reasonable in negotiation.
Frequently Asked Questions
How do I negotiate terms of a Lease? Are there any hard and fast rules?
In brief the answer is no. A Lease is essentially the embodiment of the agreement between you and the other party. The Lease is broken down into a number of sections and there are certainly a number of factors you want to be considering with negotiating the Lease, such as:
- the length of the initial term;
- whether there should be any options to renew the Lease for a further term;
- The annual rent and whether that rent is subject to GST;
- the obligations to return the property to its current state at the end of the Lease;
- the obligation to repaint;
- the percentage of outgoings that the tenant is required to pay;
- the landlord’s access for essential repairs;
- annual rent increases;
- use of common property;
- the permitted use;
- the hanging of signage;
- whether a development application is required;
- whether the tenant can sublet or assign; and
- whether the tenant should be responsible to pay for the landlord’s legal fees.
Our commercial lawyers offer a free 30-minute consultation and can discuss all these options with you and more, thereby allowing you to make an informed decision on what is right for your personal circumstances.
What Happens Once the Lease is Drafted?
Once the Lease is drafted both parties need to sign the Lease. If the tenant is a company it is usual for the landlord to request that the director gives a personal guarantee. This protects the Landlord in the event that the Tenant company goes into liquidation. The Guarantor will also be required to sign the Lease to confirm that he/she will be responsible for the terms of the Lease, including the payment of rent until either the end of the Lease term or until the Lease can be assigned to another person.
Do I have to register the Lease?
If the Lease is for a term of 3 years or more, then the lease must be registered with the Land Registry Service. This means that if any person orders a copy of the title registrar, they will see that a Lease is registered against the property and will see the date that it expires. If there is a mortgage against the property it is the duty of the landlord to obtain the mortgagees consent to the Lease.
Do I have to pay Stamp Duty?
You no longer are required to pay stamp duty on a Lease dated after 2008.
How does Rent increase under a Commercial Lease
Again, this is something that you will negotiate between you. There are 3 options that may be chosen in relation to how rent will increase under a lease. Either that the rent will increase by a percentage each year, usually 3% or that the rent will increase in line with the consumer price index of Australia or that the rent will increase according to the current market rent. The last two will require some investigation and you would need to speak with your accountant or your agent in order to obtain advice each year.
What are the tenant’s obligation under the Lease
The tenant has a number of obligations under the Lease, the main ones being to pay rent on time, to pay their outgoings (rates, water, tax, charges) on time and to keep the property in good condition taking into consideration the age of the premises. The tenant is responsible to fix any damage caused by the tenant and if the tenant fails to do so the Landlord can fix the damage and charge the cost to the Tenant. The tenant is also responsible for maintaining insurance on the premises such as public liability insurance.
What are the landlords obligations under the Lease
The landlord is required to maintain the roof and the structure of the building. The lessor cannot enter the premises without giving notice, except in the event of an emergency or if the Lessee is in breach of the Lease. The Lessor is also responsible for paying all outgoings, which are usually billed to the tenant or a percentage of them billed to the tenant depending on what has been agreed.
How much of a deposit is payable under a Lease
The usual amount is 3 months security deposit, which will be usually held with the letting agent and should be returned to the tenant on expiration of the Lease.
What is a Guarantor
A Guarantor is a someone who personally assumes the obligations of the Lessee if the Leasee breaches the Lease. For instance if the Lessee fails to pay rent the Landlord can request that the Guarantor make the payment
How can the Lessee assign a Lease?
If the lessee wishes to assign his interest under the lease to another person (i.e. sell his interest to another), she/he must seek the landlord’s consent. It is usual practice for the incoming lessee to provide the same financial disclosure to the Landlord that the sitting tenant provided. The landlord will then give or deny his consent to the assignment. The landlord cannot unreasonably withhold their consent to an assignment. If the Lease is assigned all the tenants’ obligations under the Lease will cease.