Think Nicholsons

May 06

Hidden Dangers for Retail & Commercial Tenants

Stephen Robertson

Partner
Stephen is a commercial lawyer with extensive experience in advising businesses in areas of acquisitions and divestments, commercial agreements, structuring, legal risk and revenue issues. He also advises on property law, with a focus on commercial and industrial property.

You looked at all of the options for sites for your business.  You chose the best site you could afford. . . but, will you get to keep it, if the landlord decides that they prefer another tenant?

Here are some common traps to look out for in your commercial or retail lease:

1.    Demolition and Relocation Clauses

The landlord will often ask for a right to demolish the building (or centre) which your site is in - for example, to re-develop the building - and for a right to relocate your business within the building.

Every landlord likes to have an option to demolish the building and build a fancier one, and will often ask for for this sort of ‘demolition right’.  However, are you willing to spend your time, effort and money developing a site for your business, without certainty about whether the building will still be there at the end of your lease?

You might (sometimes) have a right to get compensation for relocation of your business (either in the lease, or because of legislation) – but that compensation right is usually inadequate, and can be expensive to practically enforce.  The best approach is to negotiate this issue with the landlord at the beginning of your lease arrangement, so that you know what to expect in future years of the lease.

Your site is probably a key factor in the success of your business – are you willing to let the Landlord demolish your site before you’ve earned a return on all of your capital and effort?  Are you willing to risk the landlord changing your site dramatically?

2.    Common Area Reconfiguration

 Your customers usually get to your business by passing through ‘common areas’  - that is, areas like the carpark and walkways, which are used by all tenants.  The landlord controls these common areas – does the Lease require the landlord to be reasonable in how they control them?

Usually, the landlord has a huge amount of discretion about what they can do with common areas, including changing the direction of vehicle and foot traffic, changing the location of parking, and so on.  It may suit the landlord to change common areas dramatically, to attract different tenants or to deal with practical challenges.  Sometimes the lease (or legislation) will give you a right to compensation when the landlord makes those changes - but even if that right exists, it is often inadequate.

Will your business suffer if changes to the common areas affect access or visibility for your customers?  If so, then consider dealing with this issue in the lease, before it becomes a problem.

Commercial and retail leases are usually long and complicated.  This article mentions a couple out of many issues which tenants should be aware of when considering a lease – there are many other important issues to consider as well.  Part 2 of this article is coming soon.

If you would like assistance with any of the issues mentioned above, or would like to discuss any commercial or retail leasing issue, then please give Stephen Robertson a call on (07) 3226 3944.