Four facts to check before signing a commercial lease

Commercial,LeasingMonday 20 June 2016

Commercial leases bear little resemblance to residential ones. All outgoings will be your responsibility, and there are plenty of conditions lurking in the fine print.

It’s important to check out every aspect of the lease before signing, as part of your property appraisal.

Plenty of unwary business people have found themselves stuck with spiralling costs or locked into a tenancy with severe restrictions on their freedom.

Here are some conditions to investigate before signing up for a commercial lease.

1. How long is the lease?

Many landlords like the security of long-term leases, but are often reluctant to offer them to first-timers. They want to find out how reliable you are before locking themselves in.

If you’re starting out, it can be useful to kick things off with a short-term lease, even if this means paying a higher initial rent. It allows you to test the viability of your business before getting tied up in a major financial commitment which keeps you in one location.

2. What expenses does my lease include?

Generally, most outgoings and expenses are included in your lease responsibilities, but there are other things you need to check.

What do I need to include in my insurance? Who looks after the general maintenance of the property? What is the current state of repair, and will I have to spend money as soon as I move in?

Go through the premises with a toothcomb and identify any immediate or imminent repairs which need to be carried out. Bring these to the attention of the landlord and agree on them in advance.

Find out who is responsible for maintaining things like heating, air-conditioning, machinery and utilities. You can add specific, agreed clauses to the lease to remove any grey areas of potential conflict.

3. What can I do with the premises?

Check with rental management to make sure your business pursuits are allowed under lease provisions. Certain activities involving chemicals, toxins or excessive noise might be barred.

It’s also important to check how much you are able to adapt, modify or renovate the premises. If you’re planning to build new structures or erect prominent signs, be sure the lease will allow it.

4. Is it a fair rent for the premises?

It’s important to be able to meet the specified rent, but you also need to know if it’s a fair amount for the premises.

Check out the going rents on equivalent spaces to make sure you’re not being taken for a ride.

Also ask what is included in the rental agreement regarding access to communal areas, parking spaces and lifts.

Most leases have built-in annual price increases, so consider negotiating a rent cap with the landlord before you sign rather than getting caught out with escalating costs.

Cover all the bases and head off problems down the track by negotiating a commercial lease with no surprises.