There is so much work involved in running a small business, no one wants hassles with their lease after signing on the dotted line. Asking the right questions prior, educating yourself on every aspect of your property’s requirements and enshrining your rights in the lease agreement is the only way to ensure a smooth tenancy.
Note that each state and territory has its own legislation governing rental of commercial retail premises. In NSW, the Retail Leases Act 1994 details tenant’s rights which include the right to request a copy of the lease, be provided with a retail tenancy guide and receive a disclosure statement from the landlord. The Act protects tenants from being forced to pay for anything undisclosed in the lease.
But outside of retail shops, many other commercial premises are not governed by such tight regulation, placing more responsibility on the lessee to either hire a solicitor or take all the steps themselves to ensure their lease agreement is watertight. All tenants should get legal advice.
While there are numerous questions to ask, here are a few that should be at the top of the list:
1. Is everything in good working order?
Check the premises have been well maintained especially in an older building. Brydens Lawyers’ Amanda Olic advises tenants to determine if they are required to contribute to any outgoings and have these outlined precisely in the lease. Just as important is ascertaining how payment is made for any maintenance.
Not that good working order is different to outgoings. Tenants should ensure facilities and equipment included in the lease are all in working order and have been recently serviced. For example, air conditioning servicing can be costly and it is advisable that a tenant satisfy themselves when the most recent service was completed and obtain a certificate to confirm the same.
2. Will the rent be increased?
Set this in stone. “You want to ensure you are aware of when and how the rent will be reviewed,” Ms Olic said.
3. Is there or will there be an option to buy the property down the track?
“As a tenant running an established business, you would want to ensure that you have the first opportunity to purchase the property in the event the landlord wishes to sell. This option to purchase should be clearly set out within the lease prior to execution by the tenant so as to allow the tenant to purchase the property before the property goes onto an open market,” Ms Olic said.
4. Does the landlord have any intention of demolishing or renovating the property?
These issues arise more often than expected, according to Ms Olic, so make sure you inquire no matter how unlikely the scenario may seem at the start of negotiations.
If it transpires that either scenario is included within the lease, as a potential lessee, you may want to reconsider the premises or participate in negotiations with the landlord to remove any clauses that allow the landlord to demolish the premises and/or relocate you to an alternative premises.
5. For what use - exactly - is the property approved?
Easily one the most important parts of a lease agreement, whether or not a premises can be used for the intended business is a critical factor often overlooked by prospective lessees, according to commercial agents and lawyers. The problem is, a tenant can find themselves in breach of the lease upon commencement if the premises is not permitted for the permitted use as specified within the lease.
Former CBRE associate director Patrick Kelleher, now the owner of specialist commercial agency Pine Property in Sydney’s north says changes in building codes in addition to the existing maze of regulations can make leasing a minefield for the uninformed.
“As soon as we get an inquiry people are almost taken aback by the way we drill them to ensure they - and we - know exactly what they are intending to undertake and that the premises they are looking at is zoned appropriately,” said Mr Kelleher.
“So many people tell us they want to operate a certain business but have never made any inquiries into where one exists and what is permissible in that location. I had an inquiry from a dentist and they weren’t aware that they couldn’t open a new practice in the building they had found because changes in the Australian buildings codes meant it had to be wheelchair accessible throughout.”
For reasons such as these, using an experienced local agent and solicitor to negotiate a lease is imperative in most cases. “I have a number of clients who want to open a cafe for example and on many occasions, I have had to advise them that the particular property they’re looking to lease isn’t approved for that particular purpose,” Ms Olic said. “Another client wants to open a pastry shop but again it’s not approved for that use as it previously operated as a pharmacy for many years.”
In such cases prospective tenants face either the lengthy process of applying to the council for permission to modify the premises by either submitting a DA or private certification or searching again, Mr Kelleher added.
6. Who were the most recent tenants to move in and out?
This intel can be used to find out how happy other tenants of the property concerned are with their lease arrangements. Likewise, those who have recently left can fill you in on their experiences with the landlord and property itself and if there are any areas for concern. However, it is important that such information be relied upon by tenants with extreme caution as it could be substantially misleading.