What to look for in Commercial Lease Agreements

As a business owner, signing a commercial lease agreement can be overwhelming. One wrong move could cause you a headache you'd rather avoid.

But with the right knowledge and guidance, you can learn how to negotiate a commercial lease agreement with ease.

A commercial lease agreement isn't simply a piece of paper you sign. It provides the foundation of your business's physical presence. It's therefore important for you to know:

• what a commercial lease agreement is
• key elements of a commercial premises lease agreement you should look at closely
• common red flags
• the importance of due diligence
• why you shouldn't negotiate a commercial lease alone

These factors will help you secure a fair lease that helps set your business up for success.

What is a commercial lease agreement? 

A commercial lease agreement is a legally binding contract. The contract is between a landlord (lessor) and a tenant (lessee) for the rental of property used primarily for business purposes. 

Commercial leases are distinctly different from residential tenancies.

Key elements to consider when reviewing a commercial property lease agreement

Some critical areas to look out for when reviewing a commercial lease agreement:

1. Lease Duration and renewal terms

How long is the initial lease period? Are there options to renew, and under what conditions?

Ensure the timeline aligns with your business plans and offers flexibility for growth or downsizing. 

2. Rent, GST and Outgoings

Look beyond the base rent:

• Does the rental amount include or exclude GST?
• Are you responsible for Council rates or body corporate fees?
• How often can the rent increase and by how much?
• Understanding the total cost is essential for accurate budgeting. 

3. Use clauses and restrictions

Does the lease allow for your intended business activities? Are there limitations on your hours of operation, signage or property modifications?

This is all about looking for any limitations the Landlord is looking to put in place.

4. Maintenance and repairs 

Maintenance and repairs are inevitable, at some point. But who's responsible for what? 

You need clarity on what you're responsible for, and what the landlord handles.

5. Exit and termination clauses

Business life can be unpredictable. Ensure you understand the process and potential penalties for breaking the lease early. 

Red flags to watch out for

Here are some red flags to look out for in a commercial property lease agreement:

• Vague or ambiguous language
• Excessive landlord rights or tenant restrictions
• No cap on additional expenses or rent increases
• Unreasonable personal guarantees you're expected to agree to
• Limited options for dispute resolution

The importance of due dilligence

Due diligence is a crucial part of commercial lease agreements. It's a process that involves investigating and verifying aspects of the:

1. lease agreement, and
2. the premises you're looking at leasing

The key elements we've talked about above is part of the due diligence process. But it doesn't stop there. Other parts of due diligence include:

• the property's condition and history
• the landlord's reputation and financial stability
• checking whether there are any future development plans in the area
• speaking to past tenants, if possible
• comparable lease rates for similar properties

Why you shouldn't go it alone

Commercial lease agreements are complex legal documents. It might be tempting to save money by handling negotiations yourself. However, the long-term risks far outweigh any short-term savings. That's where we come in. Our team of experienced commercial leasing lawyers can:  

• Review and explain every clause in plain English
• Identify unfair terms and negotiate on your behalf
• Ensure your agreement complies with all relevant laws and regulations
• Protect your interests and set your business up for success

Are you ready to team up with us to negotiate your commercial lease? 

Avoid potential headaches by partnering with our Commercial Law team. This will help you ensure you secure a fair and favourable commercial lease agreement.

Get in touch today. Don't wait until it's too late.