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Commercial Property Leases explained for tenants

Building a legally sound business is a carefully considered step-by-step process. One key step is deciding where your business will operate and what type of lease you need. Whether it’s a small retail space, a mid-sized office or a sprawling industrial complex, the location of your business and the Commercial Lease attached to it play a role in its success.

If not carefully reviewed by a property lawyer, Commercial Leases can be a potential minefield for tenants. They may lack industry standardisation and contain confusing and potentially ambiguous clauses that lead to misunderstandings or disputes. By investing time and resources in a thorough review before signing, you gain a well-understood lease agreement that protects your business interests.

Seasoned and first-time tenants should always double-check leases before renting a commercial property. As experienced property lawyers, P&B Law can advise you on matters such as:

Tenant and landlord rights and obligations

The document should clearly detail your responsibilities as a tenant. This goes beyond simply paying rent and can encompass everything from routine maintenance and repair obligations to who foots the bill for utilities like water rates. A solid grasp of these terms upfront avoids potential headaches and financial surprises down the road.

Parties to the lease

The Lease Agreement should clearly identify all parties involved. This includes the full legal names of both the tenant and the landlord, and any guarantors who may be financially responsible if you (the tenant) default on the lease.

Asset protection structure

The way the lease is structured can impact how your business assets are protected. This can involve clauses related to tenant improvements you make to the property and the process for recouping those costs if you choose to vacate before the lease ends.

Rent calculations and reviews

Beyond the base amount, be sure you understand how potential future adjustments will be handled. This may involve fixed annual increases or adjustments based on factors like inflation or property taxes. A clear understanding of rent calculations and reviews assists with budgeting and financial planning.

Permitted use of premises

The lease should clearly define the permitted use of the premises. This ensures your business operations are legally allowed under the agreement. Be wary of overly restrictive definitions that might limit your business activities. If the permitted use seems too narrow, consider negotiating broader terms that still comply with local zoning regulations.

Outgoings and landlord contributions

Outgoings refer to the various expenses associated with operating the property, such as property taxes, building insurance and common area maintenance. This section should detail how outgoings are calculated and your liability to contribute to the landlord's portion of these costs. Understanding this helps you anticipate your overall monthly expenses.

Additional payments and special clauses

Carefully review the lease for any additional payments required beyond the base rent and outgoings. This might include fees for specific services or utilities. Additionally, pay close attention to any special or unusual clauses included in the agreement. These may address things like signage restrictions, early termination penalties or dispute resolution procedures.

The end of the lease

As your Commercial Lease nears its end, don't get caught off guard. Scrutinise key clauses that can impact your exit strategy. First, review renewal and assignment options: can you extend your stay or transfer the lease if needed? Next, understand your end-of-lease responsibilities for repairs, cleaning and returning the property in good condition. Finally, be aware of the potential consequences of breaching any lease terms during this transition period. Knowing these details upfront can prevent costly surprises and nurture a friendly and fair owner-tenant relationship.

Please note: The information covered in this guide is general and should never be substituted for professional legal advice. Contact us for further information.