What You Need to Know About Negotiating a Commercial Lease

Ensuring Corporate Documents' Enforceability - What to Know

20/10/2020

If you’ve been eyeing the perfect location for your groundbreaking business idea, you’re one step closer to making your dream a reality. However, before you sign a lease or the letter of offer, you’ll have to ensure you’ve done a thorough look into the terms. You’ll be agreeing to a legally binding contract, after all, so you have to understand your rights and obligations as stated by the agreement. If they aren’t in your favour, you can find yourself in a complicated situation, compromising your vision for your business.

Luckily, there are plenty of ways to make sure that you’re entering into a fair contract that is beneficial to both you and the landlord. There are a few things you need to research and consider before signing a commercial lease on a location, no matter how perfect it may seem. It is also advisable to consult with commercial lawyers before you proceed.

Here’s what you need to know about negotiating a commercial lease:

Leasing Within a Shopping Centre

Before you dive headfirst into the world of commercial leasing, you must first understand that the property’s landlord and letting agent have limited responsibilities when it comes to disclosure. They aren’t required to inform you if the property was damaged by a natural disaster, for example, which can affect the condition and safety of your business.

If the location you’ve wanted for your business is within a shopping centre, the lease will probably be governed by the minimum standards in the Retail Shop Leases Act of 1994. The lease-holders have more protection thanks to this legislation, including disclosure obligations, turnover rent, options to extend, rent review mechanisms, and many more.

Clarifying Key Details Before Signing a Lease

There are a few things you’ll have to clarify with the landlord before you sign a lease. These include the lease and rent details, options like renewing or ending it early, maintenance and who must pay it, and any restrictions, such as the type of business you can conduct. Go over these with a lawyer to identify which terms are negotiable so you can discuss them with the landlord. It’s best to ask them all your questions to have a full picture of the commercial lease.

You’ll also want to distinguish between short and long term leases. The former provides more flexibility, although it won’t give you enough time to recover your investment in the business. Meanwhile, the latter requires registration with the Titles Office if you intend to rent it for more than three years.

It is essential to clarify the details of rent before signing the lease, as it helps you agree on how much needs to be paid every week, month, or in advance. Doing so will give you a clear picture of the costs, giving you a better understanding of your expenses under the lease.

Security for the Commercial Lease

Entering a commercial lease involves a significant financial commitment, so the landlord will typically require you to furnish a bank guarantee or security deposit before the lease begins. This payment is necessary for the landlord, as they need protection in case the tenant breaches the contract signed or fails to pay rent.

The terms of your lease must include the circumstances where the landlord can implement the security deposit or bank guarantee. The money must be returned to the tenant at the lease’s end, subtracting the amount owed to the owner. A bank guarantee takes up to 28 days to put together and approve through a financial institution, so you’ll want to prepare accordingly.

You can also avoid providing a personal guarantee by increasing the bank guarantee or security deposit amount. This measure is possible by negotiating a maximum on the amount of the personal guarantee provided.

Conclusion

There are plenty of details that go into negotiating a commercial lease, so it’s best to have the guidance of lawyers with you. Failing to account for a crucial aspect can be incredibly costly and risky, as it can also spell the difference between bankruptcy and success for your business. By keeping these details in mind and seeking the advice of a lawyer, you’ll be prepared to realise your business dreams.

GLG Legal is an ambitious and innovative law firm in Brisbane that offers real-world legal solutions to its clients. We provide tailored legal advice to all our clients for their commercial and property needs. We distinguish ourselves by our ideas, results, and advanced solutions—not by legal traditions or billable hours. Get in touch with us today to see what we can do for you!

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