A good lease is one that works for both you and the landlord. Here is a guide outlining how to get one.
Negotiating terms with the landlord
As most commercial lease terms and conditions are negotiable, particularly in a competitive market, the tenant should discuss the following points with the landlord at the earliest possible time. They are not exhaustive and before finalising any lease, a complete review of the heads of agreement and the lease should be done.
- A tenant will ordinarily be liable to remove from the premises all of the tenant’s fitout at the end of the Lease and depending on the definitions of what the tenant is required to remove, can even pick up responsibility to remove things that are not part of the tenant’s property but which belonged to or were fitted by a prior tenant.
- That can cost a lot and some say as much as 80% of the cost of the original fit out.
- If possible, try and have the landlord take on the obligation of the cost of the removal of the fit out.
Normally a landlord makes no warranty about the air conditioning’s suitably or adequacy for use. Therefore, make sure the tenant knows:
- who is responsible for repairs of the air conditioner
- who is responsible for its replacement
- what are the tenants rights if it does not work properly and if that happens, preferably have it so that the rent is reduced until it is fixed
Unless the lease says or indicates to the contrary, the normal commercial lease provides that the tenant will continue to be liable to the owner on an assignment of lease, including under any option. Therefore, try and ensure that if the lease is assigned, the tenant gets a release of its future obligations under the lease. [If the lease is a retail lease, Section 41A gives the tenant the opportunity to get a release on assignment.]
Services to the premises
Make sure that the services to the premises are adequate for the tenant’s proposed needs – eg is the power supply adequate. Upgrades to existing services can be costly and sometimes cost prohibitive.
- Don’t give personal guarantees in support of tenant obligations when you don’t have to – certainly don’t offer them.
- If the tenant is a company though, don’t assume that director guarantees won’t be required if they have not been requested. If you don’t want to give them, make sure that it is a specific condition of the lease negotiations that they will not be given.
Normally the lease requires the tenant to pay the landlord’s costs and disbursements including stamp duty. See if you can, negotiate out of this. However, if the lease is a retail lease, the Retail Leases Act does not allow a landlord to recover costs for the preparation of the lease.
Repaint and/or repaper
The finishes of a shop front or premises interior will often have to be repainted etc on a regular basis. If a tenant does not want this, make sure it is a condition of the negotiations.
Make sure that the permitted use rights under the lease are sufficiently broad enough and if appropriate, exclusive use rights are granted.
Usually, the landlord makes no warranty that the particular use is permitted under the relevant zoning laws. Therefore, the agreement to lease the premises may need to be conditional on council consent etc.
It cannot be assumed that the proposed use is permitted within the zoning restrictions of the Council. Therefore, the tenant needs to be satisfied about this and not enter into possession without sorting this out.
Ask the landlord to agree to add clauses to the lease to the effect that the landlord must:
- maintain and repair in proper working order any hot water service, any other fixture not
- being a fixture of the tenant, all electrical fittings and wirings and all plumbing
- keep the premises weatherproof
- clean the exterior windows of the landlord’s Building on a regular basis
If these are not specifically in the lease, the landlord may not have these obligations at all.
Heads of agreement
Be careful of heads of agreement that agents often have a prospective tenant sign. Make sure that they are not binding until formal leases are signed. That of course is a two edged sword.
Sydney Business lawyers suggests that the heads of agreement be reviewed by it before it is signed off. Even if it is not binding, it may be too late to try and change things later.