Leasing business premises is a significant financial commitment for businesses. Businesses premises leases are usually lengthy legal documents that need to be properly negotiated and understood.
This article is written for business owners that are seeking to better understand businesses leases. Our commercial lease lawyer explains:
Our commercial lease lawyer recommends seeking professional advice before you sign a lease for business premises. Commercial leases involve a significant financial commitment. For this reason, it is important that you invest in advice from a qualified Australian commercial lease lawyer.
In Australia, business leases can vary significantly depending on the property type and the landlord’s preferences. There are also different laws that apply to certain types of leases.
Retail leases often provide additional protections to tenants. These additional protections include minimum lease terms and the right to compensation for disturbance during the lease period.
The main types of commercial leases include Retail Shop Leases and non-retail leases.
Retail leases are governed by State and Territory retail tenancy legislation. These leases apply to premises used for retail businesses. A retail shop lease is broadly defined as:
In BB Australia Pty Ltd v Barry Stewart Pty Ltd, the Court found that the lease did not constitute a retail shop lease. This was because the premises were not used for retail purposes, as there was no direct sale or hire of goods to the public.
A business providing financial services to the public fell within the definition of a retail shop lease. The premises were used for retail purposes because the services were offered directly to the public.
The premises did not qualify as a retail shop lease under the Victorian Retail Leases Act 2003. This was because the activities carried out by the business were not commercial in nature. Further, the premises were not used for the sale or hire of goods or retail provision of services.
The Court found that a nightclub was not a retail shop. This was because the primary purpose was entertainment, not the sale of goods or retail provision of services.
Office leases are for premises used primarily as office space. Some office leases may be covered by the various Retail Shop Leases Acts if they meet the definition of a retail shop lease. However, many office premises will not meet this definition and will therefore be governed by Common Law.
Office leases are not (other than the relevant Property Law Acts) governed by specific legislation applying to office leases. Because of this, there is more scope for terms that are unfair to tenants. Laws that prohibit unfair contract terms can apply to certain office leases.
Used for warehouses, factories, and other industrial properties. These leases often have specific requirements related to the use of the property. They may include provisions for environmental compliance and maintenance responsibilities.
When entering into a lease for business premises, it is important to pay attention to the key terms and conditions we have explained below.
The term of the lease refers to the period of time between the start of the lease and the end of the lease, including any renewal options.
It’s important to pay attention to:
Business owners must take care to ensure the lease term aligns with the plans of the business. Changes to the location of the premises can cause significant business disruption.
The amount of rent and when rental payment can be increased (and by how much) are a key part of a business premises lease.
If a business tenant has agreed to a rent-free period, this must be accurately recorded in the lease. Further, rent reviews can be based on:
Business owners must understand and calculate how much their rent will increase by. This rental increase should be factored into any budgets and business planning.
Rental outgoings are additional costs the tenant may be responsible for, such as council rates, insurance, and maintenance.
Often, these are paid directly by the lessor and then shared between the tenants. Outgoings may be a fixed amount, but will often be an estimate. Business owners should take care to understand what types of outgoings they are responsible for and whether they have a right to audit records of outgoings.
Fit out and other building works may be carried out prior to or during the lease term. Fit out works can be common and may depend on the intended use of the premises.
Business owners must understand clauses in the lease relating to:
Business owners may want to assign (transfer) the lease to someone else before the lease ends.
The business premises lease will often describe the conditions under which the tenant can assign the lease. Understandably, lessors want to know that any proposed replacement tenant is capable complying with the lease and minimise any costs or disruption for the lessor.
It is important for business owners to seek the written consent of the lessor before any assignment of the lease.
Another key provision relates to subletting the premises to someone else. Any sublease should be recorded in writing, along with the consent of the lessor.
Termination clauses can be overlooked by business owners because they have no intention of ending the lease early at the time they sign the business lease. However, termination rights are important because:
Termination clauses in business premises leases should be reviewed by a qualified commercial lease lawyer. They will be able to explain a tenant’s rights and negotiate any clauses that appear unfair.
We discuss make good obligations in commercial leases in this article.
Negotiating a commercial lease can be complex. There may be a delay to the start of the business lease if negotiations are not done early and properly. Here are some tips to help business owners negotiate favourable terms:
Disputes between lessors and business tenants can arise for various reasons. There may be disagreements over rent reviews, maintenance responsibilities, or breaches of the business premises lease agreement. In Australia, there are several mechanisms for resolving lease disputes:
A retail lease is a type of commercial lease specifically for premises used for retail purposes. These leases are governed by State and Territory retail tenancy legislation and provide additional protections to tenants.
Rent increases are typically outlined in the lease agreement and can occur based on fixed increases, CPI adjustments, or market reviews. It’s important to understand the basis for rent reviews before signing the lease.
Most lease agreements will have specific provisions regarding alterations. Generally, tenants can make alterations with the landlord’s consent, but it’s crucial to have these provisions clearly outlined in the lease.
Terminating a lease early can be challenging and often involves negotiating with the landlord. Some leases include break clauses that allow early termination under specific conditions. Legal advice should be sought in such situations.
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Negotiating a commercial lease is an important step to secure premises on terms that meet your business needs and your budget. Effective negotiation can help you avoid costly mistakes and
