If you decide to lease a shop, an office or a warehouse to set up your business, we hope that the following information can help you to make an informed decision:
Investing and negotiating
- make sure the premises is a suitable location for your business
- do your research, find out everything you can about the premises before negotiating with the letting agent
- never sign anything without fully understanding of the terms and conditions
- seek professional financial advise about the impacts the lease is likely to have on your business overhead.
- obtain legal and financial advice prior to committing anything to writing.
The lease
- fully understand your rights and the terms of your lease
- engage a commercial lawyer to check the lease before you sign it
- keep a copy of the lease safely, review it periodically
- unless necessary, avoid short-term leases and renew the lease on time
- retail leases (in the retail shopping centre), the law provides the tenants more protection
Retail leases
If you are leasing premises to use for retail purposes or if the premises are in a retail shopping centre (where five or more retail shops are located), it is likely that the retail shop leases legislation will apply to the lease. The retail shop lease legislation sets mandatory minimum standards for retail shop leases in Queensland and offers tenants more protection than standard commercial leases.
Terms of the lease
The terms of a lease are negotiable so it is important that your legal and financial advisors inspect the lease to be sure the terms are fair. Consider the:
- duration of the lease and right to renew or end the lease before it expires
- formula for calculating and reviewing the rent
- possibility of sub-letting the premises
- restrictions of local council on trading types and trading hours
- landlords’ obligations to maintain the building in which the premises are located
- rights to end the lease or a temporary reduction of the rent and outgoings if the premises are damaged or destroyed
- limitations to your ability to transfer or assign the lease if you decide to sell
- responsibility to pay for rates and taxes and other outgoings, such as utilities, garbage collection, air conditioning, marketing and repairs and maintenance of the building during the lease
- types of insurance required, who will pay for it and who obtains it
- restrictions on the removal of fixtures and fittings
- obligation on you to redecorate during the terms and reinstate the premises when the lease ends
- consequences of failing to pay rent or other breaches of the lease
- implications of the retail shop leases legislation and whether it applies to your lease
- payment of a security deposit
- terms of any personal guarantee and indemnity (which is commonly required for directors of a corporate tenant)
- impact a lease may have on a franchise agreement.
Process for entering into the lease
Once you have decided to lease certain premises, the usual process for entry into the lease is as follows:
- The lease is sent to the tenant’s legal advisor for approval or amendment.
- For leases covered by the retail shop leases legislation, the landlord will also be required to provide a disclosure statement that outlines the most important terms of the lease and other information about the centre.
- When the terms are agreed and finalised, the tenant (followed by the landlord) will sign the lease.
- The landlord will arrange for its mortgagee to consent to the lease (if required). If the term of the lease is more than three years, the landlord should arrange registration of the lease to protect your ongoing occupancy rights.
What if the premises are damaged?
Unless otherwise agreed, commercial tenants usually have an obligation to maintain the premises in good repair. These obligations will extend to cleaning the premises, repairing or replacing fixtures and fittings and ensuring repair of infrastructure for services and utilities (pipes, wiring), unless the lease assigns this the obligation to the landlord. Your obligations under the lease will apply irrespective of whether any damage is covered by insurance. Usually tenants have the responsibility of returning the premises to the same condition they were in prior to the damage.
Repairing structural damage to a building however, is usually the landlords’ responsibility, depending on the extent of repairs needed and the specific terms of the lease.
Before entering into the lease you should have your insurer carefully review the insurance and indemnity clauses to ensure that they can provide adequate insurance cover to you as required by the lease.
Lease fees and costs
Be aware that in addition to any obligation to pay rent and outgoings, it is common for a landlord to require the tenant to pay lease registration fees, mortgagee consent fees and the cost of any survey plan to be annexed to the lease. In some commercial leases, the landlord will require you to pay its legal fees; this is often negotiable.
Other costs are likely to include the costs of obtaining any authority approvals to operate from the premises, the cost of insurance and the costs of obtaining a bank guarantee or other form of security required by the lease.