For many businesses, a lease is one of the biggest financial and legal agreements it will undertake. Entering into a lease is a contractual arrangement and once signed, binds all the parties to its terms and conditions. As leases often run for many years, it is crucial that you get the right documents in place from the beginning.
So what should you look out for when negotiating a lease? Here are 5 key items to consider:
- Can you actually operate from the premises?
It can be easy to get caught up in the excitement of securing new premises for your business however you should always ensure that the landlord has suitable authority from the local council to operate your business from the premises.
This authority comes in the form of a Development Application and outlines what types of businesses can operate on the premises.
If a suitable consent from local Council is not in place, you may be signing up for a lease that doesn't actually allow you to trade. A recent case in the Illawarra earlier this year saw a budding café owner sign onto a lease without having first secured the right to operate from Council. The café owner is now stuck with paying rent for a shop he cannot use.
- How long can you stay?
The term of the lease sets out the number of years that the lease will be in force, as well as any options to renew the lease for further terms.
What constitutes a suitable term will depend on the business. For new and upcoming businesses, a short initial term of 12 months, with an option to renew for 2-3 years ensures that should the business not be as successful as hoped, the business owner will only be bound for 12 months. If the business grows, the business owner has the opportunity to secure the premises for a further period.
If your business has been operating for some time, you may wish to negotiate a longer term so as to secure the site for the foreseeable future.
- How much does it cost to stay here?
Rent is a key component of all leasing arrangements. The lease document will set out not only how much rent is payable, but also how increases to rent are to be calculated.
In some leases, a landlord may also specify that a percentage of your business turnover be paid as rent.
You should review the proposed lease documents carefully to ensure that you can afford the rental payments.
- Who pays the bills?
Like any property, there will often be bills and expenses payable for physically running the premises.
You should review the proposed lease to ensure that it is clear who is to be responsible for paying for outgoings of the premises otherwise you may get caught paying for everything!
- Special conditions
As each business is different, it is important to ensure that your lease fulfills your needs. This may require you to have special conditions added to your lease for things such as:
- Proposed fit outs of the premises (outlining the type of work proposed, when they can be carried out, who is responsible for costs etc);
- Usage rights as to common areas of the property (such as bathrooms or carparks)
- Specific trading and access hours
- Outlining who is responsible for maintenance obligations for air conditioning or fire extinguishers
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.