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Navigating Business Leases: Legal Tips to Secure Your Ideal Premises

If you do not already have suitable premises for your business, you can choose to either buy or lease. The best option for you can be determined with the help of financial and legal professionals. If you decide to lease premises, this guide offers practical advice to help you enter a lease and avoid common pitfalls.

Commercial and Retail Leases

Commercial and retail leases set out the legal terms and conditions under which a business may occupy premises. Before entering a lease agreement, whether you are the lessor or lessee, it is highly recommended to have an experienced property lawyer formally prepare and review the agreement. This ensures that your interests are protected and helps maintain a balance of rights between the parties. A clear lease agreement with expertly drafted terms can minimise lease disputes and save both parties time and costs.

Investing and Negotiating

When you identify a suitable location for your business, ensure you know everything about the premises before negotiating with the letting agent. Remember that the landlord and agent have limited disclosure obligations (e.g., they are not required to disclose if natural disasters previously damaged the property).

You may receive a letter of offer or intention to sign. Never sign a letter of offer, letter of intention, lease, or pay any deposit without fully understanding the terms and conditions. A lease can be crucial to the profitability of a business, often being central to its goodwill, value, and future sales. Occupancy costs may be a significant business overhead. Consult your financial advisors about the best way to structure your lease and understand its financial impact. Always obtain legal and financial assistance before committing anything to writing.

The Lease

A lease is a contract that outlines the terms of possessing a property for a specified time at an agreed fee. Different laws and conditions apply depending on the type of business, the premises’ location, and the tenancy’s length. Failing to understand your rights and the lease terms may cause you to breach the lease or lose important rights.

Leases are legally binding, so it is essential to have your legal advisor thoroughly review the lease before signing. Your legal advisor can help you avoid expensive misunderstandings that could cost you money and your business.

Retail Leases

If you are leasing premises for retail purposes or within a retail shopping center (where five or more retail shops are located), the retail shop leases legislation will apply. This legislation sets mandatory minimum standards for retail shop leases in Queensland and offers tenants more protection than standard commercial leases. It covers disclosure obligations, turnover rent, options to extend, outgoings payable and recovery requirements, rent review mechanisms, trading hours, relocation and demolition procedures, dispute resolution, and tenant compensation rights.

Short-Term Leases

Short-term leases provide flexibility but also carry the risk of not being able to renew your lease or recover your investment in the business. The terms of maintaining the premises are usually the same as for long-term occupation. Discuss options with your legal and financial advisors.

Long-Term Leases

Leasing for longer periods ensures stability but may have a more considerable financial impact if you are unable to trade. To protect your rights as a long-term occupier, leases for more than three years require registration with the Titles Office.

Terms of the Lease

The terms of the lease are negotiable. Have your legal and financial advisors review the lease to ensure fair terms. Consider the:

  1. Duration of the lease and right to renew or end the lease before it expires
  2. Formula for calculating and reviewing the rent
  3. Possibility of sub-letting the premises
  4. Restrictions of local town planning laws on types of services or goods that can be traded and trading hours
  5. Landlord’s obligations to maintain the building
  6. Rights to end the lease or temporarily reduce rent and outgoings if the premises are damaged or destroyed
  7. Limitations on transferring or assigning the lease if you decide to sell, and the expenses involved
  8. Responsibility for rates, taxes, utilities, garbage collection, air conditioning, marketing, and building maintenance
  9. Types of insurance required, who obtains and pays for it
  10. Restrictions on removing fixtures and fittings
  11. Obligation to redecorate during the lease term and reinstate the premises at the end
  12. Consequences of failing to pay rent or other lease breaches
  13. Implications of retail shop leases legislation
  14. Payment of a security deposit
  15. Terms of any personal guarantee and indemnity
  16. Impact on any franchise agreement

Process for Entering into the Lease

Once you decide to lease certain premises, the usual process is:

  1. The lease is sent to the tenant’s legal advisor for approval or amendment.
  2. For leases covered by retail shop leases legislation, the landlord must provide a disclosure statement outlining the most important terms and other information about the center.
  3. When terms are agreed and finalized, the tenant and then the landlord sign the lease.
  4. The landlord arranges for mortgagee consent (if required). For leases over three years, the landlord should arrange registration to protect your occupancy rights

Lease Fees and Costs

In addition to rent and outgoings, tenants may need to pay lease registration fees, mortgage consent fees, and the cost of any survey plan. In some commercial leases, landlords require tenants to pay their legal fees, which can be negotiable.

Other costs may include:

  1. Obtaining authority approvals to operate.
  2. Insurance
  3. Obtaining a bank guarantee or other security required by the lease.

Minimising Lease Disputes

Both parties should obtain independent legal advice regarding their rights and obligations to minimize lease disputes. When both parties have a proper understanding of the agreement, their rights, and their obligations, it helps prevent misunderstandings and potential conflicts.

This guide is for informational purposes and does not constitute legal advice. For specific legal concerns, consult your solicitor.

If you would like to discuss your personal circumstances with one of our experienced family lawyers, please contact our office today on 1300 244 342 or email us at admin@kingsfordlawyers.com.au and one of our conveyancers will assist you.

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