If you’re a business owner you’ll often find that one of your biggest expenses relates to your business premises as a commercial property tenant. Because of this, it’s important you make sure you’re entering a fair and reasonable commercial lease agreement at the right price from the very start. As commercial leasing specialists we can work with you to ensure you’re getting a fair deal.
There are a number of commercial terms that need to be agreed upon prior to the drafting of the commercial lease agreement, which is usually done by the Landlord’s lawyer. These terms make up the backbone of the commercial lease agreement and are documented in a Heads of Agreement.
What are the main terms negotiated in a commercial lease agreement?
- Rent. This is an obvious one, but sadly not enough new tenants carry out adequate research on what is fair market rent. At Eve Property Group, we thoroughly research each property to provide tenants with up to the minute comparable leasing evidence and information on current market rent.
- Landlord Incentives. This can include rent-free offered by the Landlord, contribution to a tenant’s fitout or other works required by the Tenant. It is important to not only understand what incentives tenants in similar properties are being offered, but to also use these in a way that will benefit your business.
- Annual Rent Reviews. It is standard practice to have an annual rent review, and the amount of the review can vary greatly depending on property type and location. One method which is often viewed as the fairest, is CPI rent review. However some Landlords, in particular shopping centres, will ask for a fixed amount sometimes as high as 5 or 6%.
- Lease Term and Options. Whilst there are requirements on minimum lease terms under each State’s relevant Act, most of these can be taken as options. Don’t automatically sign on for five years because you want to secure the property for the long term. Lease options are for the benefit of the tenant so put them to good use.
- Outgoings. This can also include insurance, repairs and maintenance etc. Read the fine print very clearly and ensure that anything you are being charged for is a) your responsibility and b) can be oncharged to you under the Act. Some things, such as Land Tax, cannot be oncharged under the Retail Leases Act 2003 in Victoria.
- Make Good. You may think there is no need to be concerned about this until you vacate a property, but if you can outline your make good obligations within the commercial lease agreement from the start it will make things a lot easier when it comes time to vacate – and will most likely save you a lot of money.
These terms are all negotiable as part of the commercial lease agreement and within the relevant Act if applicable, and the Tenant should seek expert advice on what is standard for their particular property market. The savings you are likely to make upfront with some assistance from us will save you significantly, not to mention the savings you’ll see over the lease term.
Once the commercial terms are agreed by both parties, the draft commercial lease agreement is prepared. It is imperative that you seek expert advice prior to signing any document, especially a lease which can cost you hundreds of thousands of dollars during your occupation. In most cases the Landlord’s property lawyer has prepared the lease documentation and it will likely favour the Landlord and be more onerous on the Tenant.
It is best to contact us prior to agreeing to any terms within the Heads of Agreement, as we will be able to thoroughly review them, provide you with expert advice and assist with negotiating more favourable commercial lease terms. Some of the clauses that can leave the Tenant exposed financially and contractually relate to repairs and maintenance obligations, environmental clauses, indemnities, make good, rent reviews etc.
What will it end up costing you if you don’t seek expert help with your commercial lease agreement?
At Eve Property Group we make a commitment to our clients to ensure we pass on as much property advice as possible to keep you fully informed and give you the knowledge that everything is negotiable! We will assist you throughout the whole leasing process and liaise with the agent, landlord or property lawyer on behalf of or with the client. Contact us today to see how we can help you on 1300 266 341 or email firstname.lastname@example.org