Leasing Business Premises
Leasing business premises is a very large and complex commitment. It is very important that you take your time to consider the suitability of the premises and the lease that comes with them. Avoid being coaxed, pressured or persuaded into an arrangement that may not be what it seems and turn out not to be suitable for your business.
It is very important that whatever arrangements you and the owner of the premises agree to, are clearly documented. If you (the lessee) are leasing retail shop premises, your relationship with the owner (the lessor) is governed by the Retail and Commercial Leases Act 1995.
While the legislation sets out the key rights and obligations that you and the lessor have, many of the day-to-day matters that arise in your occupation of the premises are contained in the lease. Therefore it is critical that you understand what a lease is and what you should do before entering into one. This will help reduce the likelihood of encountering serious financial and legal problems.
What is a lease?
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. Before you commit to a lease, you should ensure that you have:
- Included any representations made during negotiations into the lease.
- You have inspected the premises and recorded their condition, including that of any fixtures and fittings and plant and equipment in a “Premises Condition Report” drawn up by you. This should include an assessment of the utilities available and how they are metered. Taking photos would also be useful.
- Discussed with other tenants any issues they have encountered and how they have been resolved.
- Received independent financial advice about your financial obligations under the lease.
- Received independent legal advice about those terms in the lease that you may not understand. The solicitor may also be able to negotiate on your behalf.
- Contacted your insurance broker/company to discuss and clarify your insurance obligations under the lease.
- Contacted 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.
What do I look for in the lease?
It is critical that you consider all the terms and conditions in the lease and any other supporting documentation, before you make a firm commitment. If there are matters that you need clarified you should consult a solicitor.
The main areas to consider are:
- What are the start and end dates?
- Do you have an option to renew?
- Do you have to give notice to exercise your option?
- Does it need to be in writing?
- Under what circumstances can the lease be terminated?
- What notice needs to be given?
- Can you assign (transfer) or sub-let under the lease?
- How much is the rent and when is it payable – weekly, monthly?
- How and when can the rent be increased?
- 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 have?
- 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 make good obligations?
Who can help?
As mentioned in the foregoing, you should consult the relevant professional to help you determine your rights and obligations under the lease.
The Office of the Small Business Commissioner can provide you with information about the provisions of the Retail and Commercial Leases Act 1995, but cannot provide you with legal advice. You will need to consult with a solicitor for this. You can also check with your industry association to see if they can give you some guidance.