By Alexandra Geelan, Lawyer
At some point, almost all growing businesses will require a commercial or retail lease. As the ‘home’ for your business, commercial or retail premises provide you with a space and base from which you can grow and implement your ideas, Finding and committing to the perfect premises can be a daunting step, but can play a key role in your ongoing success.
A lease is also an important asset for your business, particularly if your business model requires you to build goodwill and brand recognition in a particular location (such as cafes, restaurants and shops). If you want to bring investors on board or sell your business, having a solid, long-term right to stay in your premises is an important factor in the valuation of your business.
But, unfortunately, commercial leases themselves are often viewed as a box-ticking exercise. Business owners mistakenly think that it is enough to have any lease in place, regardless of what the terms of the lease actually say. In an ideal world, this would be the case - you would sign the lease, put it in a drawer and forget it. However, as soon as something goes wrong with your premises or with your business, your lease is often the first place you will need to look for a solution or way out.
While some tenants, such as retail shop tenants, have certain statutory protections, for most commercial tenants the terms of the lease are the start and the end of their rights. Critically, the lease dictates:
what rights parties have in respect of the premises;
how each party can preserve and exercise those rights;
what the parties’ obligations and liabilities are in respect of the premises;
what happens if either party breaches or fails to comply with the terms of the lease;
what happens and who is responsible when something goes wrong at the premises; and
how the parties are able to deal with their interest in the premises.
Even with retail shop leases the various legislative regimes simply provide a minimum level of acceptable conduct and rights for tenants - the legislation is not a replacement for a thorough, well-negotiated lease. The legislation can also be confusing and difficult to navigate, so having a clearly set out lease can provide a one-stop shop for your questions regarding your lease and use of the premises. An effective commercial lawyer will ensure that the terms of the lease are written in plain English and are easy to follow.
The primary value of leases, as with most commercial contracts, is in giving the parties certainty as to their rights and obligations. This is important because if something goes wrong (such as damage to or destruction of the premises, faulty fixtures, fittings or services, or business under-performance), the parties can quickly and easily resolve issues in accordance with the rights and procedures in the lease, rather than engaging in time consuming and costly dispute resolution or litigation.
Unfortunately, it is all too common for us to deal with leasing disputes where the landlord and tenant cannot agree who is responsible for and entitled to what. Leasing disputes are not only a drain on money, time and energy, but they also often result in the trust between the landlord and tenant deteriorating to where it is not possible for the parties to continue their commercial relationship. This is often costly for both parties as they try to fine alternative premises or tenants.
Often the only chance you have to negotiate the terms of a lease will be at the beginning of the relationship, when both landlord and tenant are looking to strike a beneficial deal but have the ability to walk away if things don’t feel right. It is important that both landlord and tenants take the time to review and understand the terms of the lease and to negotiate more favourable terms for themselves.
Our next articles will look at the difference between retail and commercial leases, as well as some practical tips for how you can negotiate, and what clauses you need to focus on.
At Law Squared, we partner with passionate entrepreneurs and businesses who need our technical help and expertise in many areas. We’d love to have a chat with you, so feel free to drop us an email at firstname.lastname@example.org.
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