What is a Commercial Lease?
A business property lease or commercial lease is a legally binding contract between a business owner (tenant) and the owner of the real estate property (landlord).
These documents are a far more complicated than residential leases, because the lease is usually heavily customized to the individual situation. The lease terms and conditions need to be very carefully read by the tenants to make sure that they match the needs of their business, as any mistakes at the beginning could be very costly for the new business.
If the tenant has a retail business then additional diligence and disclosure requirements may apply because the retail leases are governed by relevant state specific retail tenancy legislation. It is important that legal advice is sought before signing the retail lease because the provisions of the retail tenancy legislation will override the lease terms if there is a dispute. In NSW if the retail lease is for a term less than five years then the tenant must also obtain a solicitor’s certificate and retail lease for term of five years or more must be registered.
Can tenants negotiate the terms?
Yes, lease terms are often negotiable. Some of the specific terms or restrictions which may be up for negotiation include the rent amount, rent increases, the duration of the lease, options, the modifications you can make to the property and whether you can transfer or assign the lease.
What else should tenants look for?
This depends on the tenant’s specific situation and their business requirements. Some of the common things we find we need to discuss with clients include:
- If you’re a new business, check that the length of the lease suits you, as many landlords prefer to lock in a longer lease.
- There are several ways to calculate rental increases so make sure you understand and agree to the one chosen by your landlord.
- Read the section on property improvements very carefully as it should set out who can make changes, who pays for the modifications and whether you have to return the property to it’s original condition at the end of the lease.
- Make sure the lease includes all of the areas you expect to use including bathrooms, storage area, parking area and common areas or you will need licence for these areas.
- Be careful that the lease doesn’t stop you from erecting signs in certain areas.
- Seek legal advice before you make any commitments, including signing an offer, paying a deposit or moving anything you own into the property.
What if I am in a dispute with my landlord?
Firstly, find your lease documents and read them carefully, making sure that you completely understand the legal terms and conditions.
Secondly, make sure you understand your legal rights and responsibilities and those of your landlord.
Then consider the options, which include negotiation, mediation, and court action.
Contact our Commercial Property lawyer for legal advice specific to your business lease agreement and other related documents.
We can also assist landlords with drafting or enforcing the terms of the lease.