Important tips before signing a retail or commercial lease
If you are looking to rent or lease a commercial property or shop do you know where to start? Leasing is a huge and complex financial commitment. If you are considering leasing here are the next steps you need to take? The Polaris Centre often sees people looking to start or move their business from home and want to have a shopfront or office. You should do your homework before committing to a lease.
If you are leasing for the first time, it is strongly suggested that you get some professional help from a solicitor or accountant. The Polaris business advisors can give you general guidance from their own experiences and with assistance of information provided by the South Australian Small Business Commissioner.
Before you commit to a lease, there are several things that the lessor or their agent must provide to you.
- A draft or sample lease
- A copy of the most recent version of the SA Small Business Commissioner’s Retail and Commercial Leasing Guide.
- A disclosure statement
Once you have received these documents, you should undertake a full review, and make sure any representations made to you are included in the documents. You should also inspect the premises and record their condition and take some photos. Some of the main areas to consider in reviewing documents are:
Lease term and conditions
- What are the start and end dates?
- Do you have an option to renew?
- Do you have to give notice to exercise your option?
- Under what circumstances can the lease be terminated? What notice needs to be given?
- Can you assign (transfer) or sub-let under the lease?
- Does the permitted use allow you to operate your business now and into the future?
- How much is the rent and when is it payable – weekly, monthly, GST inclusive?
- Is a bond or bank gurantee required?
- How and when can the rent be increased? Often this is linked to cost of living increases.
- When can a market review of rent be done?
- What happens if rent is paid late?
- Which expenses (outgoings), including those for common areas, are you liable to contribute to?
- What proportion of these expenses (outgoings) are you liable for?
- How are your contributions to outgoings accounted for?
- What insurance do you need?
- Who is responsible for maintenance of the property and at whose cost?
- Are you permitted to make alterations to the premises?
- When you leave the premises, what are your obligations to return the premises to its original state (make good)?
You should also contact the relevant local council to ascertain that the premises are suitably zoned for your business activity. You could also ask what development plans the council has, or has received for the area.
If there is anything you don’t understand, you should ask for clarification and ensure that it is put in writing. You should consult the relevant professional to help you determine your rights and obligations under the lease. Remember that a lease is a legally binding contract that sets out the rights and obligations of the lessor (landlord) and lessee (tenant). If you are leasing retail shop premises your relationship is also governed by the Retail and Commercial Leases Act 1995.
There are great tips and resources available from the South Australian Small Business Commissioner. It is also a legal requirement that lessees are provided with a copy of the Retail and Commercial Leasing Guide.
If you are ready to commit to a lease, then you can find some tips in our Negotiating a retail or commercial lease article.