Reviewing Commercial Leases: Why just any legal egg-head won’t do

As commercial lawyers, we are asked to review a variety of commercial property leases on behalf of tenants and, just as often, asked to prepare them on behalf of landlords.

A common initial question among many tenant clients is: do I really need you to review this first?

Of course, you’d expect the lawyer’s answer to always be a resounding YES.

That said, not just any legal egg-head will do. Ensuring your lawyer understands your commercial imperatives is also key to ensuring the advice you receive has practical value rather than a generic, dry, academic statement of the legal red flags without any real practical relevance or assessment of your unique needs or commercial risk profile.

Further, even if you have a good deal of experience with leasing, commercial tenancy law is constantly evolving and having a working knowledge of the area is indispensable in ensuring not only that the lease is above board from a legal perspective but also that it is commercially adapted to your unique business needs.

Whilst by no means conclusive, below is a list of 10 things you should be asking your lawyer for customised advice about when reviewing your lease.

  1. Are the Premises correctly described?

Are you actually leasing the space you bargained for? Whilst this may seem trivial and altogether obvious, with larger commercial premises (and leased premises forming part of multitenancy buildings) it’s important to ensure that the square meterage, the amenities (such as car parking spaces and common areas), and access points are properly described to avoid any later disputes and that the space as described matches your expectations and your business needs.

  1. Is the ‘permitted use’ correct and not too restrictive?

What will you (and what might you) use the space for? Having a less restrictive and/or multifaceted permitted use specified in the lease may allow you to conduct different types of business on the premises and also facilitate the assignment (transfer) of the lease in the future if that ever becomes necessary.

  1. What about the Lease term (duration)?

Does it match your plans and business timeline? Your lawyer should also advise you of whether the Retail Leases legislation relevant in your state applies to the lease, and if so, what impact that will have on the lease and the tenancy generally.

  1. Is the security appropriate?

Whether the lease requires a cash security deposit, bank guarantee, personal guarantee or multiple forms of security, it is important to ensure the security arrangements work for you, are not overly onerous and properly reflect your bargaining position.

  1. What about the Option Terms?

Make sure your negotiated further terms give you the security and flexibility to grow (and potentially sell) your business. Your lawyer should also advise you on the process to be followed to exercise your option so that is clear and easily able to be complied with so as not to miss important option notice deadlines.

  1. How do the Rent Reviews work?

Is the process fair? Are annual reviews fixed, tied to CPI, by reference to market or a combination of several? In agreeing on the process for reviews it is important to ensure the arrangement is commercial and not likely to result in a significant burden given the cumulative effect of increases over time. Your lawyer should also ensure the process complies with the requirements of the relevant retail leases legislation.

  1. Are any Tenant and/or Landlord works obligations properly set out?.

Whether the landlord has promised to complete certain works for the tenant or simply offered the tenant an incentive payment to complete certain works, this will need to be meticulously documented. It should also be made clear who will own certain fixtures and what can (or must be removed upon the tenant’s departure). Not properly documenting make-good arrangements can cause a great deal of heartache and expense upon the expiry of the tenancy.

  1. What outgoings am I responsible for?

Understanding the outgoings on a premises is integral to adequate budgeting. Oftentimes, commercial tenants will focus a large amount of attention on the rental figures in their negotiations without properly considering what the other costs associated with the property are (such as rates, water, insurance, maintenance  of common areas etc). Legal advice (and proper review of the Landlord’s Disclosure Statement) can be integral here, as the relevant legislation will often dictate what can and cannot be claimed by the landlord.

  1. What’s the Rent?

For most commercially minded people, evaluating whether rent is appropriate is a relatively straight forward affair. However, when rent reduction or rent free periods are involved, a seasoned legal eye can ensure that you get what you’ve negotiated and ensure the landlord’s obligations to pass on any rental concessions are clear. Ensuring the concessions are passed on (or even staggered) in a way that works for you can also be instrumental, particularly with start up businesses relying on some initial breathing space from ongoing financial commitments.

  1. Have you got what you bargained for?

It can be common for certain concessions to be made to the tenant in the negotiation stage. Unfortunately, these don’t always make it into the eventual drafting of the lease.

Whether for commercial reasons or simply because the landlord is seeking to keep their options open, key aspects of the deal can often be omitted. For example, use of common property for storage, extra car spaces, the right to occupy part of the premises as a residence or even permission to use the space for certain events have often been aspects which parties negotiate but then fail to commit to writing. When parties fall into disputes at a later stage, it is often these unwritten concessions that are the first to become matters of contention.

Our team have extensive experience in commercial leasing and can assist with everything from simple reviews to complex drafting and commercial negotiation on your behalf. A key factor in our approach is bringing commercial sense and industry knowledge to lease negotiation, not just egg-head legals.

If you need some assistance with commercial leasing, contact a member of our team for on-point, practical guidance.

Joseph Carneli, Senior Associate

2020-03-02T02:54:37+00:00February 16th, 2020|Business Advice, Contracts, Corporate Advisory, Dispute Resolution, Property|Comments Off on Reviewing Commercial Leases: Why just any legal egg-head won’t do