Common mistakes when signing a commercial lease

CommercialFriday 2 June 2017

A commercial building lease is a significant commitment for both the lessor and the lessee, and without the proper guidance it’s all too easy to make mistakes that are difficult to undo or solve. Here are the most common mistakes we see on both sides of signing commercial properties for lease and importantly, how to avoid making them yourself.

Mistake #1: Skimming over the details

For both parties, it’s imperative that you know precisely what your responsibilities will be for the length of the lease. For landlords, you’ll want to work with your solicitor to include all specific costs and outgoings with detail. For tenants, never assume something is included in your lease. You may be expected to upkeep air conditioning equipment or other central building systems. If not all car parks on the property are included in the lease, you could find yourself paying for these elsewhere. If the premises are located within a shopping precinct, there could be additional clauses that affect fitout restrictions or access hours.

Mistake #2: Feeling like you’re painted into a corner

Very few of us make good decisions when we’re panicked or stressed, and the negotiation process for a commercial lease can be intimidating. When searching for commercial properties for lease it’s always a good idea to get advice from a leasing specialist and speak with your solicitor, whichever side of the transaction you’re on. These advisors can provide objective opinions that could help you address critical factors throughout the process.

Mistake #3: Failing to check for zoning approval

It’s the responsibility of the potential tenant to check commercial zoning approval for the area before you sign on the dotted line. For example, if you sign a lease believing you are entitled to run an industrial-type business and the property is only zoned for commercial use, you will usually still be responsible for that lease. In a similar way, if you’re planning renovations or building work on the property it’s vital to check with local council regulations and adhere to the planning application process, rather than relying on the landlord or property manager for information.

Mistake #4: Disregarding the significance of the lease

You may be committing to a five or ten year lease, so tenants will need to do the maths on whether they’ll be able to meet their obligations over the entire term. Some tenants might request a cap on the percentage increase for any rent increases over time. A subletting clause can provide reassurance for both parties should the business fail or repayments become impossible, while a Right of Assignment clause enables a tenant to transfer the lease if they decide to sell the business within the term of the lease.

Mistake #5: Trying to go it alone

Whether you’re looking for the ideal commercial property for lease or for the perfect tenant, a leasing agent can help to connect you with the right opportunity and to negotiate terms that suit both of you. Burgess Rawson’s leasing services are available to both tenants and landlords to help you find the perfect commercial property lease arrangement, so contact us today.