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Commercial and Retail Leases
A commercial lease is a contract between a landlord and a tenant for the rental of commercial property. Before signing a commercial lease, it is important to obtain advice to understand the lease contract that defines the rights and responsibilities of each party – here are the main issues to consider:
Term of lease and option to renew
The duration of the lease is important when negotiating a commercial lease. Negotiate flexibility into the term and options of the lease to suit your requirements. Usually there will be a clause which provides an opportunity for you to renew your lease between three and six months before the end of your lease.
Rent and reviews
The rent and rent reviews are negotiated between the landlord and tenant. Under NSW legislation, there are no regulations to specify rents or the rate of increase. However, the law specifies that the timing and basis of those reviews must be set out in the lease for each rent review period. This should be clearly set out in your commercial lease contract.
Rent for a commercial lease may be inclusive of outgoing costs such as water rates, land tax, management fees, strata or other levies and council tax. The lease document will identify the type of outgoings for which you will be liable.
There are no legislative requirements for a bond under a commercial lease, and are usually in the form of a bank guarantee or cash deposit. The lease will need to specify when the bond will be returned to the tenant after the lease has ended and under what circumstances the landlord can withhold funds from the bond.
Fixtures and fit-out
Under current NSW legislation, unless otherwise agreed, tenants generally pay the cost of installing shop fixtures and fittings. When the lease has ended, tenants usually remove the fit-out and return the shop to the condition it was in before the lease began. This is called “make good”. Check that your commercial lease agreement contains an inventory of the landlord’s fixtures and fittings (if any) and your right to install and remove fixtures.
The commercial lease should clearly outline what repairs and maintenance the tenant is responsible for and what is the obligation of the landlord. Often the tenant is responsible for general repairs and maintenance. The lease should clearly outline what the landlord is responsible for such as the roof, common areas like gardens and hallways and air-conditioning.
Make sure that the lease clearly sets out the nature, extent and timing of the refurbishment.
The above are just some of the main issues to consider when considering entering into a business lease. There are many more matters that need to be considered. It is wise to obtain legal advice from our team before making a commitment to a commercial lease.
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