Project Description
If you’re about to sign a lease for business purposes I have three messages for you:
- Congratulations on your new business venture and;
- Whatever you do, DO NOT SIGN ANYTHING WITHOUT A LAWYER.
- In fact, don’t even sign any OFFER TO LEASE without a lawyer.
Now, I know what you’re thinking.
We’re a law firm, so of course, we’re going to recommend getting a lawyer to review the terms and conditions of your lease.
But what if I told you that commercial leases are one of the areas where lawyers will actually help you save money… A LOT of money?
Don’t believe me?
Take a lot of some of the most common ways businesses lose money on their leases.
1. You Don’t Realise Negotiation Is An Option, So You Pay Too Much
Unlike residential leases, the rent specifications within commercial leases can and should be negotiated.
Landlords usually want to secure a longer lease term (3, 5, or even 10 years) and they may be willing to offer reduced rates (called a rent abatement), a rent-free period (of up to 12 months in some cases!) or fit-out contributions as a incentive for you to sign on.
2. You Get Slapped With Crazy Rent Hikes
If your annual rent review (fixed rent increases) uses a fixed percentage you could end up paying way too much rent within a few years.
A commercial lawyer with experience in commercial leases can help you assess the attractiveness of a fixed percentage increase or even recommend market reviews when appropriate. Frequently our clients can expect to have up to 2 percentage points reduced from initial review rates.
3. Your Competitors Move In On Your Turf
The success of many businesses (especially retail) is often hinged upon their physical proximity to their competitors.
A lawyer can help negotiate exclusivity clauses into the lease that prohibit your landlord from letting your competitors set up shop in the same complex.
4. You End Up Paying for Their Lawyers
Often landlords will include a clause in the agreement that says you’ll have to pay for the costs they incur while preparing and/or enforcing the lease.
A lawyer can help you negotiate out of this cost.
5. You Go Broke
In much the same way that residential leases require a bond, commercial leases also need some form of security from the tenant, such as a bank guarantee or a personal guarantee.
A lawyer can help you understand the serious risks of personally guaranteeing a lease.
And, if these risks are too great for you to take on, they will also help negotiate a suitable compromise with the landlord that avoids putting all of your assets (such as personal property) on the line. This could be as simple as agreeing on an additional bank guarantee.
With proper structuring, you won’t have to worry about going broke and losing your real estate assets if you default on your lease.
6. You Get Kicked Out
Planning on staying a while? If your lease doesn’t include an option to renew, your landlord will be well within their rights to give your business the boot once the original lease has expired (even if they swear they won’t).
A lawyer can help you draft an option to renew that will allow you to continue leasing on similar terms. They will also give you specific renewal instructions so that you get all the paperwork filed according to the correct procedures and within the required timeframes.
Are you currently reviewing a commercial lease and need help making sense of it all? Feel free to email your queries through to Kevin, our resident commercial property expert. Just shoot a message to k.zhang@phoenix-law.com.au or call Phoenix Law & Associates on 07 3607 3274. We’ll help you save money and make sure you rent on your terms.
