Do you know the risks involved with signing a commercial lease?

Conveyancing.com on 30 January 2018

A commercial lease enables a company to rent a property for the sole purpose of conducting business from it. Unlike a residential lease, the period in which you rent the property can last over three years before the lease is renewed.

Before you sign a commercial lease, it's important you know all the potential risks involved. From permitted uses to town planning, there are many factors that can affect your lease. It can be a devastating financial blow to your business if your new premises can't be used for what you originally envisioned it for.

Found the perfect property for your business? Contact Conveyancing.com for legal advice on signing the commercial lease.

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Outgoings

It's crucial to get an estimate of how much the running costs will be for a commercial premises before you move in. Some running costs can be referred to as 'outgoings'. Knowing what these costs are can help you establish a budget for your business.

By law, a landlord must provide a disclosure statement that outlines an estimate of the outgoings before you sign a rental agreement. These outgoings can include council rates and owner's corporation fees.

The outgoings must be detailed in an audited statement which includes accounting periods. After signing a lease, it's a requirement that your landlord provides a statement of outgoings. You should receive this statement no later than three months after the end of every accounting period.

Do not sign a commercial lease without looking at the statement of outgoings. One look at the cost of outgoings could make you think twice before signing on the dotted line.

Questions you should ask before signing

Have I received all documents required before signing a commercial lease?

Documents should include a copy of the commercial lease agreement and a disclosure statement.

Who takes responsibility for maintaining the fixtures, fittings, and equipment of the premises?

Responsibilities for these items are usually shared. This should be explained in the rental agreement.

Does the lease have a permitted use clause?

A permitted use clause outlines how the premises can be used. Make sure this doesn't affect the way your business wishes to operate now or in the future.

Does the owner of the premises have a mortgage on it? If so, do they have approval from a lending authority(e.g. a bank) to lease out the property?

If a lending authority hasn't approved your lease, they may be able to evict your business from the premises.

Can my rent be reviewed and changed?

A change in rate could be influenced by your business's turnover, profit or percentage increases. Make sure this is made abundantly clear in the commercial lease agreement

What are my options after the lease expires?

You may be able to renew the lease or even purchase leased goods from the property

Legal advice

Getting your commercial lease reviewed by a professional can be a safeguard against financial loses. A conveyancing lawyer can thoroughly review your commercial lease agreements and identify any potential legal issues. It's vital you approach them before signing a commercial lease.

A legal professional can review tenant obligations such as service agreements. These agreements are put in place to identify who is responsible for maintaining certain features of the commercial property. There are many details to check in contracts:

  • One feature of the property could be a mechanical service such as a lift or escalator. It should be clear in the rental agreement exactly who is financially and logistically responsible for maintaining them.

  • The property may require fit-outs or renovations to accommodate the way your business will operate. A legal professional can also review any approvals and permissions for this.

  • The local council may have laws and restrictions in place that could prevent you from making any changes. In a worst-case scenario, you may not able to use the property the way you wanted to after signing the lease.

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Financial advice

A financial advisor can provide you with a great financial insight on the property you wish to rent. They can review your budget and ascertain whether or not your business can afford the property you have in mind.

A good financial advisor can check if the costs of your lease can be deducted in any way during tax time. Lease agreements may require your business to purchase leased goods and equipment. In this case, it could prevent your business from claiming rent as a deduction.

Financial advisors can help you identify potential financial pitfalls before they happen. So don't hesitate to enlist the services of an advisor before you sign any lease agreements.

Know what you're getting into

Signing a commercial lease is a big step towards giving your business a new home. Put the needs of your business first and make sure the property is a great fit both logistically and financially.

So before you sign a Commercial Lease, make sure you review every aspect of it. Professional advice will always be a great form of support for you.

Ready to sign a commercial lease? Ask a lawyer from Conveyancing.com to review the legalities of it first.