An important concept to consider when negotiating a lease is the
length of your term as ramifications can arise in regards to the
term of lease - including how the term can affect the value of your
business, particularly when goodwill is driven by location.
Sometimes, depending on who the landlord is, it may be difficult
to get the term length that you desire. Some landlords may have a
maximum term while other landlords have a policy of not agreeing to
options to renew. You should consider the impact of this on the
viability of your business.
It is also important to consider the commencement date of your
lease. For instance, if the commencement date coincides with a
slowdown in the business cycle, you may struggle to establish your
business. You should also take into account other factors which may
affect commencement: whether or not you have received all relevant
approvals, if the fitout has been fully completed and when trading
can commence. You may wish to delay commencement until these issues
have been finalised.
In a new development, you should also look at the timing of
completion of premises for other businesses trading near yours.
There is potential for disaster if you open a business and there
isn't enough daily foot traffic to sustain it.
With regards to options to renew, look at how long the
term/terms should be, how rent will be determined on exercise of
option and the dates of exercise of option. Make sure you diarise
those dates and stay on top of when your option period/periods
begin and end.
If you're negotiating a retail lease, the Retail Leases Act
addresses issues such as market reviews (and impacts on exercise of
option) and where there are no options to renew. This is a good
reference point for where to look next in negotiations. The Act
also specifies a minimum term (five years). If you want less than
the minimum term, there is a process which needs to be
If you are a franchisee entering into a lease directly, you need
to make sure that your lease terms align with the terms of your
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.
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If an owner wants to remove a caveat, issuing a lapsing notice is a quick and easy way to shift the problem to the caveator.
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