Interested in leasing a retail or commercial space? Read on to ensure you understand some of the lease terms before signing on the dotted line!
Length of Lease
The duration of a lease can be negotiated between landlord and tenant. Unlike residential tenants, commercial tenants in most Australian jurisdictions are entitled to at least a 5-year lease. This right can be waived by a tenant for a lease with a shorter time period. The reason tenants may waive this right is if they are starting a new business and are unsure of its success or long-term suitability.
Rent Reviews
Rent is reviewed on an annual basis. It can be reviewed based on a fixed percentage, the Consumer Price Index (CPI), or market rate.
A fixed percentage or CPI is more common for annual rent reviews. However, if exercising the option to renew, you can set the rent review to be based on market rate instead. This is because a fixed percentage or CPI may continue increasing at a higher rate than market rate over the years.
For example, for a lease term of 3 years, you can set a fixed 3% annual increase. Then, in the event you exercise the option to renew, you can set the rent review for the 1st year of the renewed term to be based on market rate.
Market rate can be determined by appointing a valuer to determine the current market rent.
Outgoings
Outgoings are rates that are payable by the tenants under a lease, such as council or water rates. You should seek clarification from a landlord on what the estimated outgoings are for roughly a 12-month period.
An estimate is usually provided in a document called Landlord’s Disclosure. The landlord is required to provide this document to the tenant at least 14 days before the commencement of the lease. If this disclosure is not provided, the tenant is not liable to pay rent.
Rights and Obligations
Each state in Australia has a relevant retail or commercial lease legislation that sets out each parties’ rights and obligations. This will be shown in the lease agreement. Generally, the tenant is responsible for maintaining the premises, but not the major structural aspects of the building. Appliances or specific items such as heating or cooling fixtures should be carefully defined in the lease to avoid disagreements on whose responsibility it is to rectify.
Contact W Legal Group
As part of your due diligence when entering into a lease agreement, ensure you speak with a legal team who can assist with the review and negotiation of lease terms. Call any of our Australian phone numbers or email us today at hello@wlegalgroup.com.au to find out how we can help you.
