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Everything you need to know about Leasing

Many business owners lease property from which to run their business. It is important for both lessors and lessees to know their rights and the traps to avoid when leasing.

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How to negotiate a Lease

Negotiating a Lease can be tricky. Here are our top 5 tips for ensuring you come out on top:

  1. Research, research, research! Make sure you understand the future of the area within which you are leasing and what the current market rent is.
  2. Work out who is going to pay for the fit out, how much will be spent and who will do the work.
  3. Review market conditions and the economic climate and consider what type of rental increase (CPI, market or fixed amount) is likely to be in your best interests in the future.
  4. Make sure the purpose for which you are allowed to use the premises is broad enough to cover all possible future uses.
  5. check what outgoings you are responsible for paying for – you don’t want any surprises once you are in the premises!

Concessions to ask for

It is still a renters market in many places in Australia and landlords are offering significant concessions to new tenants. If you are looking to lease a commercial space, now is the time to get a good deal.

Here are some conditions you may be able to negotiate for inclusion in your Lease:

  1. Time - ask for the amount of length of Lease that you want – whether it be long or short.
  2. Rent - if work will be done to the property before you open the doors, make sure you aren’t paying rent until you start trading. Rent concessions (such as half rental or rent free periods) for the first year of the lease or beyond may also be available.
  3. Important Tenant - if leasing in a shopping centre, negotiate for a clause that if an important tenant leaves you have the right to leave or pay reduced rent;
  4. Fit-out - ask the landlord to meet the cost of the fit out.
  5. Outgoings - ask the landlord to pay the significant outgoings for the premises.

Traps to avoid when Leasing

When you finally find the perfect premises, its hard not to fall into the trap of signing up without properly considering all the terms of the Lease. Make Good Obligations and Outgoings are two common traps to look out for before signing up to a Lease.

Make Good Obligations
It is important to carefully consider what your obligations will be at the end of the Lease. Many Leases include what is known as a “make good” clause, which requires the tenant to undertake certain works to the premises to restore it to the condition it was in at the start of the Lease.

These clauses often impose specific requirements, such as repainting the premises, replacing certain fixtures, removing any works you have undertaken to the premises and changing the carpet. The cost of meeting these obligations can, depending on the size of the building and the other terms of the Lease, be significant. Ensure you review these obligations and negotiate to limit them.

Many Leases provide that the tenant is to pay for the outgoings of the premises. If this is the case, make sure you have reviewed what the likely rates, water, body corporate, electricity, insurance and any other outgoings for the premises will be before committing to entering the Lease. The cost of these outgoings can add up quickly and make an initially attractive looking Lease not worth entering into. You should also consider if the increases on these outgoings can be limited (such as agreed maximum cap on increases) to avoid major spikes which can from time to time occur for insurance, rates and body corporate levies.

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