Commercial Leasing

It is important that the right steps are taken by all parties to a commercial lease to ensure that the lease properly reflects the agreement between the parties. There is no document which is a standard commercial lease, each lease reflects the different terms and conditions required between the parties. If you want to lease premises it is important that you engage a solicitor to carefully check and agree on the details before you sign the lease.

The process for entering into a commercial lease is a complicated process and it is important that you understand all of the required steps prior to going through the process to ensure that no important part is missed.

Finding the property

The first step is that you need to locate the property that you want to lease, the important aspects here are to find a property that meets your space and location requirements. These are the initial aspects of the search that will help you determine what commercial property is right for your property.

Initial negotiations

After you find the correct premises you would ordinarily contact the agent who has listed the commercial property for lease who will usually have a letter of offer or agreement to lease for you to complete and sign. This document usually contains the salient features required for the lease, amongst other matters it would ordinarily include the name of the landlord and tenant, the rent payable, the commencement date, the area of the premises and the length of the lease (with any options to renew).

Once you sign this document you are bound by the terms of it, if it requires that you pay a deposit then you will be immediately bound to pay that deposit upon signing. You should ensure that you read through the document and ask for it to be made to your solicitor’s approval and that you are entitled to a full refund of any monies paid if you do not proceed with the lease.

The Lease

Once the landlord accepts the offer to lease/agreement for lease, ordinarily the landlord will instruct their landlord to prepare the formal lease agreement. This is the document that sets out the terms and conditions upon which the tenant leases the property from the landlord. At this point if you have not previously engaged a solicitor is vital that you do so to ensure that all of your requirements are covered in the lease and that you are not left with any onerous requirements or any term that is not one to which you have previously agreed.

Is the shop being leased a Retail Shop?

Special types of leases are governed by the Retail Shop Leases Act 1994 (Qld). Broadly, a Retail Shop Lease is a lease of premises by a business that is classified as a Retail Shop or those which are within a retail shopping centre. This Act provides additional protection for tenants to prevent landlords from imposing conditions that are too onerous in nature.

Usually a tenant will be required to provide, amongst other documents, a Legal Advice Report. This is a document in which a lawyer confirms that they have given a prospective tenant advice in relation to a number of areas of the lease such as the legal meaning and effect of the rights and obligations that apply under the lease in respect to:

• how rent is to be calculated and reviewed under the lease
• liability to contribute to the lessor’s outgoings and how outgoings are calculated
• any other payments required under the lease and how they are calculated
• term of the lease
• special or unusual terms or conditions
• repayable bond or guarantees required
• whether or not the lease contains an option to renew and the rights of the prospective lessee/assignee* if there is no option to renew
• obligations of the prospective lessee/assignee* at end of lease
• whether or not the lease contains a relocation clause or a demolition clause and if it does, the way in which the clauses operate
• permitted use and exclusivity of permitted use
• consequences of the prospective lessee/assignee* breaching lease conditions
• lessee’s/lessor’s entitlements when dealing with the lease or business assets as security.

The Act also deals with a number of requirements and minimum standards that a landlord must meeting including:

• rent review;
• damage and destruction clauses;
• turnover rent and figures;
• promotional levies

Specific provisions of the lease

Given that there is no standard commercial lease it is important to remember that the terms of a lease can be negotiated to ensure that they properly reflect the rights and obligations of the party and also are not too onerous on either party.

There are various matters that you should consider in entering a lease including:

• what is the initial rent and the method for calculating the increases in the rent over the term of the lease;
• The initial term and how the lease is to be renewed;
• whether local town planning laws allow your business to operate
• your right to transfer or assign the lease if you decide to sell, and the expense of doing so
• whether you can sublet the premises;
• who pays for keeping the premises in good repair, rates and taxes and outgoings and other charges
• all the additions, improvements, and fixtures made during the lease
• the types of insurance required and who obtains it;
• restrictions on the removal of fixtures and fittings;
• your obligation to remove partitions and reinstate the premises after expiry;
• the consequences of failing to pay rent;
• your right to end the lease before it expires;
• ways of resolving any disputes;
• whether the Retail Shop Leases Act 1994 (Qld) applies to your lease and what that means
• special obligations under a shopping centre lease; and
• payment of a security deposit and the terms of a personal guarantee.

Obligations as an ongoing tenant

Be sure to:

• comply with the conditions of the lease
• give notice in time to renew the lease
• understand your rights if you stay on without renewing the lease
• obtain the landlord’s consent if you wish to change the type of business you run
• understand the landlord’s right to end the lease