Think Nicholsons

Jul 25

Hidden Dangers for Retail & Commercial Tenants - part 2

Stephen Robertson

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.

My previous article in this series mentioned some common traps to look out for in your commercial or retail lease, in relation to:

1.    Demolition and Relocation Clauses; and 

2.    Common Area Reconfiguration

Another important area relates to entitlement to incentives.

3.    Incentives - what do you have to do, to get them?

Incentives are often a significant part of the lease - without them, most tenants would not sign up to the other commercial terms.

It's quite common for the landlord to contribute to your fitout via an incentive.  If this is going to happen, then there are a few points to think carefully about:

- when will you get the incentive?  In many cases you will have to outlay the money for fitout first, then get the incentive from the landlord at a later stage. In some cases the landlord will insist that all fitout defects are rectified before paying the incentive.  Do you have enough working capital to allow for that possibility?

- do you have to meet specific timeframes to get the incentive?  For example - do you have to complete all fitout, perfectly on time, by the end of the fitout period, to qualify for the incentive?  I often see that requirement, and it's quite unfair to the tenant and should be negotiated.  You may be happy to wait until fitout is finished to get the incentive, but you shouldn't lose the incentive because of unexpected delay.

At other times, you may take an incentive as a rent reduction, across the term of the lease.  If that's the plan, then:

- do you need to perfectly perform the lease, 100% of the time, to get the incentive?  If you are late with the rent in year 2, will this lead to a loss of incentive and to much higher rent (without the incentive) in future years? If so, then that's not realistic.

- if you sell your business and transfer the lease, do you have to repay the incentive to the landlord?  If so, then make sure you plan for this.

Dealing with these issues when negotiating the lease (or any agreement for lease) can save you a lot of heartache and a lot of money, in the future.

Commercial and retail leases are usually long and complicated.  This article, and my previous article mention a few of many issues which tenants should be aware of when considering a lease – there are many other important issues to consider as well.

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