While Commercial leases are relatively standard documents, there are a few pitfalls you’ll want to avoid. Every clause is important to review to ensure you don’t end up facing financial or legal difficulties down the track.
The most obvious thing to look for in a commercial lease is the cost and the frequency of payment. Importantly, most commercial lease agreements will include an increase in cost over time. This is calculated differently through factors such as market rates, fixed rates and percentage rent based on business profits. It is important to understand the implications of the payment scheme you are signing up to. This is especially the case in commercial leases as they will often be renewed over lengthy periods of time. Besides this, it is important to understand the frequency of payment required and any additional costs should rent be paid late.
Length is a crucial element to a commercial lease. Signing into a commercial lease will essentially leave you legally bound for the set period of time. Often, leases that are commercial in nature will extend beyond a single year. Therefore, it is important to understand the length and cost of the full period you are legally bound for.
Inclusions will be listed in the commercial lease and will outline items and fittings that are included besides the property itself. A good example would be a commercial lease for hospitality premise. A cafe or restaurant may include fittings like cooking equipment and ovens that might be included within the lease. Some other inclusions to consider may be parking spaces and storage space.
Outgoing are essentially the costs you are obliged to pay. Within the agreement, it is important to look for costs that you will have to pay for in addition to regular rent. This is likely to include utility bills such as water, electricity and internet costs. In some cases, you may be required to pay specific strata and property management costs. Often, these costs are not directly stated in the agreement and it will be important to gain clarification before signing.
5. Subleasing limitations
Subleasing is where the lessor looks to sublet the premises out to another party. Often this is governed by provisions in the original agreement with the landlord. Limitations to this will vary depending on the lease, however, it is almost always required that the landlord is notified of the intention to sublet. Therefore, if you are looking to sublease in the future, the agreement will govern whether or not you will be able to.
It will be important to consider where the lease will take place. Depending on the state or country, there may be different regulations and requirements for a successful lease. In some states there are minimum requirements for the length of leases. Besides this, some jurisdictions require the registration of leases to the government. When looking at the agreement, it is important the jurisdiction is outlined and matches the location of the asset being leased.
7. Rights and responsibilities
Your rights and responsibilities will be outlined in the lease. These will outline what you actually able to do with the lease and any limitations imposed. For example, there may be requirements for the tenant to keep the premises in a certain condition. Whilst repairs and modifications for leased premises are governed by law, it is likely the agreement will still outline any repairs or modifications that may be done to the premises. For a small business this may limit the possibility of advertising or installing specific equipment or machinery.
8. Default and Termination Clauses
The contract will outline what happens at the end of the lease. It will also outline the process that must be gone through should a tenant default on their payments and will therefore usually impose a dispute resolution process to be undertaken. Besides this, the agreement will also outline how and when the landlord can cancel the lease.
9. Security deposits requirements
Generally all commercial leases will include a compulsory security deposit to be used should there be any damage caused by the tenant. Its cost and when it will be imposed is outlined in the agreement and is therefore a key cost and liability to consider.
10. Insurance requirements
Often commercial leases will require tenants to be insured for how they use the premises. For example, a commercial lease for a retailer might require them to take out a certain level of public liability insurance should an individual injure themselves on the premises. Requirements like this will be set out in the lease document.