Your lease can be one of the most important aspects of your business and you may not even realise it.
More often than not a business' premises will fundamentally impact upon its success. The viability of many retail stores depends upon foot traffic past the store front, some retails stores don't rely so much on the foot traffic but more so on surrounding businesses attracting potential customers to the area, distribution companies may need to be centrally located to ensure they are able to distribute to their customers in a timely manner, some manufacturing businesses require specific infrastructure within the vicinity and the list goes on.
A large part of your business' goodwill may attach to your business' location.
With all of that in mind it is obviously important to secure a lease for the premises which protects your interests and your business.
Of course, the basic provisions you would be interested in include:
Term of Lease
1. the term of the lease. You will be granted a initial term and hopefully sufficient options to renew.
Consider some matters you will want to take into account in negotiating your lease term:
1.1 you want the lease to be long enough for you to enjoy the benefits of the goodwill you have built up in the operation of your business;
1.2 you don't want the initial term to be so long that, in the event that your business is not successful and you have to close down, you are potentially liable to the landlord for rent until the end of the initial term. Consider the difference between rent for a 5 year initial term as compared to a 10 year initial term;
1.3 each time renew a lease you will incur costs. For example, you may be required to pay for the landlord's costs on renewal and you should have the renewal documents reviewed by a solicitor yourself. You may also be required to pay lease registration fees, mortgagee consent fees and other fees payable on renewal. So if you have an initial term of 10 years, as compared to an initial term of 5 years with a 5 year option to renew, you will incur more fees in the later option;
2. The rent you pay for your lease will impact on your bottom line.
2.1 generally the parties will negotiate the initial rent as a set amount. It is not uncommon for rent to be calculated based on turnover of the business.
2.2 consider how the rent is to be renewed will this be by a set percentage increase? an increase in line with CPI? a market review?
2.3 Consider obtaining professional advice with regard to the method of rental review.
2.4 if you have agreed to a market review of rent on renewal remember that if the Retail Shop Lease Act applies then you can require the landlord to give you an early determination of the rent they intend to charge on that review. You can get this early determination before you are required to renew the lease. This means you won't get a nasty surprise on renewal. Tight time frames apply to requiring this early determination and you should seek legal advice.
Destruction or Damage Clause
3. Many landlords and tenants alike got a nasty shock during the 2010 - 2011 Queensland floods. Prior to that the "she'll be right" attitude was adopted when reviewing damage and destruction clauses.
3.1 Review the clause. What will happen if the premises are damaged or destroyed?
3.2 Often the rent will abate. But, we often see very unfair clauses that limit when and how the rent will abate.
3.3 make sure you are not required to continue to pay rent if the premises is damaged or destroyed.
4. The requirement to refurbish your premises throughout the term of the lease can be costly and can interfere with your business.
4.1 the landlord's need to ensure the premises are of a high standard and are well maintained needs to be balanced with the cost to the tenant.
4.2 most refurbishment clauses will state how often the tenant is required to refurbish. Some refurbishment clauses require refurbishment upon notice from the landlord. Consider how often it is required or what will trigger a refurbishment.
4.3 also consider what may be required during a refurbishment. The term will often be defined in the lease. Are the requirements excessive?
Each lease is different. Some leases are governed by the Retail Shop Leases Act, some are not. The Property Law Act or the Land Titles Act may impact upon your lease.
Case law may determine how certain clauses in a lease are to be interpreted.
If your premises is an essential element in the successful operation of your business then you cannot afford to take any risks with your lease.
We will be continually updating our summary of lease provisions and we invite you come back and view what has changed from time to time.
Note - this article is of a general nature only and is not to be relied upon as advice. Each lease has different provisions. You should seek legal advice with respect to your circumstances.