What is a lease?
A lease is an agreement between the landlord (i.e. the owner of the property) and the tenant (i.e. the person who occupies the property) that details the tenant’s right to exclusive use and possession of the property for an agreed duration.
A lease commonly details, but is not limited to, the following:
- Details of the landlord;
- Details of the tenant;
- The length and type of tenancy;
- Permitted use of the property;
- The obligations of the landlord and tenant;
- The amount of bond required;
- Any special terms agreed by the landlord and tenant
Types of Leases
There are three main types of leases:
- Short-term lease: a set period with a duration between one month to up to five years.
- Long-term lease: a set period of more than five years.
- Periodic lease: a weekly, fortnightly or monthly lease.
What should you do before entering a lease agreement
Legal Due Diligence
When you enter a lease, you also agree to comply with the relevant laws and regulations. It’s common for tenants, and sometimes landlords, to be caught out by restrictions or obligations.
For example, you are about to sign a retail lease to operate your pub. The questions to consider include:
- Are you aware of the liquor licencing and lockout laws that place restrictions on pubs, bars, and nightclubs?
- Are you aware of any noise restrictions in the area that could potentially impact your business?
It’s crucial that before signing a lease you understand the details of the terms. Your solicitor may recommend during this process to include or remove certain terms.
Financial Due Diligence
Entering a lease is a financial commitment. There may be penalties if you are unable to meet the terms agreed upon with the Landlord. Other than rent, there may be other items (e.g. council rates, water fees, owners corporation fees, etc) that need to be factored in before entering into a lease agreement.
For instance, you run a cafe on leased property and have anticipated the business to be profit-generating. However, you subsequently identify competitors operating similar businesses nearby that impact your revenues. Regardless, rent and outgoings are still payable.