You’ve sourced a suitable premises for your business, and you’ve agreed on the rent and the duration of the initial term. Before you commit, you need to establish the other key terms of the deal. These need to be reduced to writing – even in emails although preferably by a more formal Offer to Lease or similar.
Think about what you believe your responsibilities will be, what you will be required to pay for, what you are required to maintain or replace, and what you have to do when you vacate. Was the air conditioning running properly when you took possession, and who has to pay for the routine maintenance and parts? Are those costs part of the outgoings….or are you even paying for outgoings in addition to the rent or not?
What are the fundamental things that you need for your business to flourish? Is there allocated parking for your staff, and will your customers have easy access to your store? Can another shop in the centre sell the same items as you or will you have exclusivity?
There is no set list of matters that need to be considered when you are working out the terms of your lease, but these are some other examples:-
- can this premises be lawfully used for the purpose you intend;
- does the rent include GST or not and what is the position on the payment of outgoings;
- what are your trading hours and what about after hours costs;
- is the plant and equipment functioning properly and is it going to be serviced before you take possession;
- if you are taking over an existing fit-out, what are the terms and conditions around that, eg will you be required to remove and make good when your lease ends or not;
- are there works to be undertaken before you take possession, and are those landlord or tenant works, and will those be completed before you start paying rent;
- have you received tax and structuring advice about the correct lessee entity;
- is the security bond reasonable and do you understand the implications of giving directors guarantees;
- is this lease covered by the Retails Shop Leases Act and if it is, what does that mean?
Don’t assume that there is a standard rule or position on issues. If the other party is telling you that there is, then remember they may just be saying so because it suits their interests. Maybe call us to get another opinion. Raise the points and make sure that there is consensus about the issues and have them recorded. Too often the parties will commit to and sign off on terms that are not sufficiently detailed. A lease document is then issued that contains provisions on critical matters that have either not been discussed and negotiated at all, or have not been clearly reduced to writing. Sometimes the lease is silent on those issues.
Getting the terms settled in the first instance can save time and costs when the lease issues, because it should reduce the extent of any amendments, or re-negotiations that need to occur.
If you would like to discuss any of the above further, please telephone Nicholas Prove on (07) 3226 3944.
In the next article in this series, I will be looking at whether Offers to Lease are binding on the parties.