Commercial Leasing
Are you looking to expand or bootstrap your business in Victoria quickly with a lease? Leases are usually long-term and may cast significant obligations on both parties apart from just rent. Thus, it is vital to make an informed decision before offering or signing a commercial lease or retail lease, especially when they are complex and cover a wide array of clauses meant to protect the interests of both parties.
Parties are usually free to negotiate commercial contracts subject to contract law and various protections available to small businesses in Australia in negotiating contracts. You may be considering a lease for an office, factory, warehouse or café.
Some factors that a tenant or landlord may consider before drafting or reviewing a lease include:
▶︎ Responsibility of repairs and maintenance:
In most cases, a landlord is responsible for the structural work and providing premises safe for use and habitation. This obligation may be affected by local laws or force majeure clauses in case of accidents like fire or earthquake and other disasters. A tenant is usually responsible for general repair and maintenance. Prudent parties may specify what constitutes such minor and major repairs in detail.
▶︎ Options and renewal:
Most leases have the option to renew subject to reasonable rent review and other terms. Renewal is often exercised by a Notice. Prudent parties may specify the mode of delivery of notice and specify the exact terms of renewal.
▶︎ Increase in rent & rent review:
Both parties should negotiate the rent and the frequency of rent reviews. Rent reviews are usually annual and most common types of rent review include fixed percentage increase, prevalent market rent, fixed mount increase and other indexes. Prudent parties may provide a specific method of calculation and specify the increase in rent for 10-20 years even if the term is shorter.
▶︎ Licenses and permits:
Landlords must ensure that the intended use by tenant complies with local laws and tenant must ensure that they have all the licenses required to run their business. Prudent parties may provide for early termination of lease in case licenses or permits are not granted after reasonable endeavors.
▶︎ Assignment and sub-leasing:
Parties must determine whether the premises may be sub-leased or assigned to another third-party. Usually there are restrictions on such assignment in retail leases.
▶︎ Insurance:
As a general rule, the landlord will maintain insurance for the building or rent losses. This may not be mentioned in the lease itself. A tenant is typically required to maintain various insurances which are specified in the lease. These may include public liability insurance, contract works insurance, worker’s compensation insurance etc. Prudent parties may specify the exact insurances and minimum coverage amounts in the lease.
▶︎ Lease term:
Parties are usually free to negotiate the term of the lease. New businesses may prefer a short term one lease with options to renew or terminate the lease based on the success of the venture. A long-term lease is preferable to recoup investment. Leases may also have penalties for early termination or a lock-in period which is the minimum period a tenant must pay rent even if they stop using the premises. Some commercial and retail businesses may also be entitled to minimum 5-year tenancy terms which cannot be terminated by the landlord. Prudent parties may provide specific dates for the end of lease and exercise of renewal options or early termination.
▶︎ Obligations at the end of the lease:
Usually, a tenant is supposed to return the premises to the landlord in reasonably similar condition that it was rented out. This ‘make good’ obligation may require tenant to bear the expenses of removal of any fixtures or decorations. Prudent parties may arrange for an independent contractor to provide a condition report of the premises at the beginning of the lease which can then be used as a reliable standard to assess the original condition and general wear and tear of the premises.
▶︎ Redevelopment, relocation or sale of premises:
Commercial properties may be sold and redeveloped, thus parties must ensure that they are aware of the consequences of such redevelopment. Prudent parties may provide for prior notice of redevelopment and its effect on the rent and term of the lease.
▶︎ Applicability of Retail Leases Act:
It is vital to determine whether the Retail Leases Act is applicable to your lease. The act is applicable when the business uses the premises primarily for dealing with the end-consumer of a product or service. A disclosure statement is required to be provided with the proposed lease when the Retail Leases Act is applicable.
▶︎ Other ancillary terms and costs:
Parties must be aware of any security bonds or bank guarantees associated with the lease and the terms of their encashment. The ancillary costs of licenses, permits, maintenance must be factored in the revenue model of the business.
▶︎ Defaults and breaches:
It is important for both parties to be aware of their obligations and the consequences of such breaches. Usually, breaches occur when one party fails to comply with its obligations due to financial or other constraints. Prudent parties may arrange for legal advice after encountering a breach by the other party.
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What can Denning Legal do for you?
Our lawyers have diverse experience in providing across the board consultancy to retailers, investors, tenants and landlords in drafting, reviewing and negotiating commercial leases as well as retail leases for standalone retail stores and shopping complexes.
Our leasing experience includes acting for clients in various real estate investments in Victoria, and dealing with high volume leasing transactions for commercial leases, retail premises, industrial leasing, and lease dispute matters. Our service offering includes:
▶︎ Drafting and negotiating agreements and documents for leasing transactions or specialty leases.
▶︎ Drafting of standard lease and documents for high volume transactions and large-scale landlords and tenants.
▶︎ Advising clients in relation to options, rights and liabilities for the termination, renewal or surrender of lease.
▶︎ Due diligence before lease signing including business permits and license review as well as zoning and environmental issues.
▶︎ Joint venture agreements or property development agreements or complex agreements with landlord-tenant revenue sharing models.
▶︎ Preparation of standard commercial lease and retail lease offers with disclosure documents.
▶︎ Compliance with retail leasing legislation.
▶︎ Advise and legal representation in leasing disputes including mediation and arbitration.
▶︎ Advise and representation in mediation and proceedings before the Victorian Small Business Commissioner.
▶︎ Obtaining gaming and liquor licenses and dealing with objections.
▶︎ Review and advice on existing lease terms including maintenance obligations, rent reviews and other obligations.
▶︎ Review of ancillary lease documents including storage licenses, car parking arrangements, assignment deeds and building permits.
▶︎ Advising landlords on redevelopment or sale and negotiation with existing tenants.
▶︎ Preparation of tenant standard form agreements for lease and negotiation of tenants preferred terms
Whether it is drafting or negotiating complex leases or dealing with issues and disputes which may arise in a lease our experienced lawyers can help you resolve your issues in a cost and time efficient manner. We can assist in enforcing your rights and remedies under the terms of the lease to achieve an outcome beneficial for your business.