When signing a lease, whether it be for an office, retail shop or studio space, there are always a few critical questions to be asked. Signing a long term lease without thinking about the potential issues is like buying a house without getting a building inspection. It should be okay, but if not, it could be an expensive oversight.
In this installment I will discuss some of the things you need to know before signing any lease. In the preliminary stages of discussion with the agent or landlord you will need to find out the following at the very least.
- Discussing the duration of the lease is the most obvious point to note. However, often overlooked are the options to renew the lease. After your 3 year lease is up, do you get first right of refusal?
- Can you transfer the lease should you wish to sell?
- Does your rent increase with CPI or is it at market rates? This is especially important in the hospitality industry. You might spend years building up a great little business and when it comes time to renew, the landlord demands a huge increase. This can leave you in a spot of bother if your business is location specific. Unfortunately not every landlord is ethical.
- Always ask who is responsible for rates, water, security, gardening costs, and shopping centre advertising. Often the agent will say the only outgoings are for water and electricity, however the lease may state otherwise. Some shopping centres charge large amounts for advertising fees. I know of one premises that charged tenants $400 per month in gardening fees.
- Some leases have conditions based on turnover/ profit. If profits go up so does your rent. If you are presented with this situation you will really need to crunch some numbers.
- Termination fees and early exit fees. Every company has these fees whether it’s for a mobile phone or a mortgage- make sure you are aware of this in case things don’t turn out like you would have hoped.
- Will you be paying the landlords legal fees? Often there will just be an agent’s lease preparation fee which is relatively small on short term leases but with longer term leases there will be a lawyer involved which is never cheap.
- Will you need a planning permit? Much of Melbourne has heritage overlays so it will be very important to understand if this affects your future premises.
This is the first installment on signing a lease.
Please keep in mind this is just general advice. It is important to be informed as I have seen far too many horror stories regarding leases of commercial property in Australia. For further expert advice go to the Victorian Government Small Business Commissioner.