Commercial leases are an integral part of business transactions, and investing in commercial property is a popular choice. When embarking on a commercial lease, there are several crucial factors to take into account.
Many lease disputes arise due to a lack of awareness regarding rights, responsibilities, and ambiguous lease terms.
From the lessee’s perspective, it is essential that the lease terms align with their business plans and objectives.
Lessors should carefully review lease terms, considering their investment strategies, loan commitments, and any future plans to sell the property.
If there is a potential sale on the horizon, it is worth considering whether the property would be more marketable with a long-term lease in place.
Both parties should thoroughly review the fine print of the lease to assess whether any amendments are necessary to protect their interests and address clauses that may favour one party over the other.
To effectively plan for marketing the property to potential new lessees and prevent extended periods of vacancy, it is crucial to schedule and keep track of renewal and expiration dates.
When delineating the leased area to avoid any confusion, it is necessary to provide an accurate description of the premises. This entails including specific details such as the unit or shop number, building name, street address, and a comprehensive legal description of the property. In cases where the lease encompasses a portion of a larger space, it is advisable to attach a floorplan highlighting the relevant areas and specifying measurements and dimensions of the lettable area.
The lease agreement should also incorporate provisions pertaining to the authorized use of parking spaces, storage facilities, and shared common areas or amenities.
Permitted Use of Premises The lease agreement must clearly state the approved purpose for which the premises can be utilised. Despite the provisions in the lease, it remains the lessee’s responsibility to ensure that the intended use complies with all applicable regulations imposed by local councils or government authorities, and that any necessary licenses are obtained.
Outgoings: Clarity regarding the responsibility for payment of outgoings is crucial, as disputes often arise in this regard. The parties should explicitly establish who is obligated to cover specific expenses and in what proportions. To avoid costly misunderstandings in the future, careful drafting of the lease terms is essential since disputes are typically resolved by interpreting the lease agreement. Outgoings typically borne by lessees include utility services, certain ongoing repairs and maintenance (such as air-conditioning equipment), council rates and water charges, cleaning, gardening, and security. The lessee may be responsible for all or a portion of these services, and it is advisable to obtain an estimate of outgoings before committing to the lease. It is important to note that in Queensland, lessors are prohibited from recovering their “Land Tax” for retail leases.
Rent and Rent Reviews: The obligation to pay rent constitutes a fundamental term of the lease. It is important to clearly specify the frequency and method of rent reviews, which are typically conducted annually. Rent reviews can be based on factors such as the Consumer Price Index (CPI), a fixed percentage, or a market evaluation conducted on the lease anniversary date. Most lessors require rent to be paid monthly in advance and may also request a security bond, bank guarantee, or a combination thereof to ensure the lessee’s compliance with lease obligations.
Fit Out and Refurbishment Lease negotiations often involve discussions regarding the customisation and fitting out of the premises to suit the lessee’s intended use. Any agreements reached during these discussions should be documented and include:
The specification of fixtures and fittings to be installed, including references to the agreed quality and standards.
Clarity on the party responsible for carrying out and financing the fit-out work. Lessors should review and approve fit-out plans.
Determination of whether a rent-free period will be granted while fit-out work is being conducted.
The lessee’s obligation to refurbish or restore the leased premises to its original condition at the end of the lease.
Verifying Facts, Registration, and Consents: Both lessors and lessees must have accurate information about the parties involved in the lease agreement. It is advisable to engage a lawyer who can review searches, plans, and company records to ensure accuracy in the lease documentation regarding the parties and the premises. A title search from the Department of Resources can reveal any other interests in the property, such as mortgages, easements, or registered leases. If the property is mortgaged, the bank’s consent will be required, and expired leases should be removed upon registration of the new lease.
Both Lessor and Lessee should seek legal advice before entering into any Lease to ensure that their agreement is well documented in writing and include all agreed upon terms between the Parties. If you need help with your Lease, contact Legalease Lawyers on 0402 121 124.
