Most people rent a commercial property at the beginning of a new business, as it is cheaper, more versatile and thus, more profitable. Commercial assets are high in demand, even as an investment, for the tremendous returns they can generate. However, laws regarding them can be quite complicated, disputes about them can be hindering, and the process of leasing itself can be long and tiresome. That’s exactly why it is always recommended that you hire a commercial property lawyer to provide you with comprehensive details about the procedure as well as guide you through the whole process and help you through any trouble occurring because of it.
What you need to know about commercial property and commercial lease
Commercial property is a real estate property used for business purposes and generating profits. Malls, grocery stores, manufacture shops etc. as retail properties; as well as office buildings, medical centres, hotels, multifamily housings, farmlands, warehouses, and garages – legally all properties like these fall under the umbrella of commercial properties.
What is a commercial lease?
According to the Australian commercial property law, a commercial lease is signed between two parties – the owner and the tenant – to legally set their obligations towards the property. It is mandatory for both the parties to be mentally capable enough to understand the terms and conditions and have a commercial property lawyer as a third party witness to approve the agreement.
Tips on commercial leasing in Australia
Since you are the one who pays the rent and wants to see your business grow in the city, it is your solemn duty to have full knowledge about commercial leasing in Australia and create the lease agreement accordingly.
What you need to know before signing a commercial lease in Australia
A commercial lease doesn’t have a specific format. All of its terms can be, and therefore, should be negotiated and fixed before signing it in order to avoid any future disputes. In any case, unless you are an expert in commercial property law yourself, it is very important to have a commercial lease dispute lawyer present at the time of making and signing the terms.
Below we have mentioned the terms in a commercial lease that you should pay special attention to, as these majorly are the ones that give rise to disagreements and confusions later.
Rent for a commercial property is usually an annual amount decided and is paid in monthly instalments. The amount can vary between cities, streets, and even levels of the same building. There is generally a clause of a hike in rent after one term end, but the amount is negotiable depending on the property and plausible ROI on the property.
- Security deposit:
The landlord generally takes a certain amount, most commonly three month’s rent, to protect himself/herself from the possible scenario of rent going unpaid. If the tenant is an organisation, he/she may also ask for personal guarantees from the company directors.
- Lease period:
Commercial leases can vary between six months to as high as fifty years depending on the clauses that are added in the lease. It even allows an “option period” after which the tenant may have a choice of increasing the lease period or else, renew it.
Tenants are permitted renovations on a commercial property as long as the conditions and extends of it are clearly mentioned in the lease, as well as the tenant submits the detailed new plans for the building, along with all necessary government permits and appropriate insurance.
In general, the repairs and maintenance of a commercial property is expected to be done by the tenant himself, unless otherwise stated in the lease agreement. In fact, in many cases, the owner expects the tenant to hand over the property in its original condition.
It is always a smart idea to have subletting rules mentioned in the main commercial lease itself so that the tenant can choose who can take over the property in his/her absence.
The landlord cannot legally relocate the tenant until the lease term ends, even if the property is sold off to another party. However, relocation of the tenant might happen in case the landlord itself goes under a foreclosure action and the property is seized by the government. To be safe from an incident like this, it is always a good idea to add a non-disturbance clause to the property agreement.
In case the lessee itself wants out, he can, by paying a “break fee” which is determined according to the market conditions at the time of departure, as well as includes all expenses for the property to be marketed and rented out to a new occupant, plus the rent until the start of the new lease.
As you are adding all the terms to avoid a dispute, you should always be ready for a dispute as well – it may not always be under your control. Have a commercial lease dispute lawyer as a witness of signing the lease as well as in your contact itself so that you may be advised on ways to dodge a lengthy and expensive court case in case dispute occurs.
Research well before signing your commercial lease
Remember, Australian commercial property laws give more protection to the landlord. So make sure that you research all the following areas thoroughly before signing a lease:
- The landlord:
The landlord of the property you are leasing may be the owner of the whole building or the owner of the particular space you are renting. He/she can be a powerful person in the locality, a criminal, or a poor person almost at the verge of bankruptcy, or be a tenant of the space, itself lagging behind on rent. It is critical that you be a realist and collect all information regarding your own eviction even when you do nothing wrong.
Commercial property lawyers cannot stress this point enough – it is extremely important that you get a non-disturbance agreement signed along with the lease, with proper witnesses present in order to protect yourself.
- Laws in the area:
If you are selling a product or a service from a specific location, you should meticulously study the area before even considering renting any property – if your expected clientele is there in the area, how they conduct themselves, what connects with them, etc. Nevertheless, more importantly, you need to know if you are following all the laws of the location – the zoning laws, nuisance laws, and the environmental laws specific to the area in question – to avoid violation and thereby, a possible eviction.
- Exclusivity clause:
An exclusivity clause in the commercial lease restricts the owner from renting out the nearby areas of your business to your competitors, without your explicit consent. You can extend this even further by adding a competitor clause. If your landlord signs that, he/she cannot lease even space in the same building to a competitor of yours.
- Insurance clause:
Your landlord can ask you to carry basic insurance forms, such as insurance for property and liability. Have leverage by negotiating protection for rental interruption insurance (in case your company is disrupted by something like a natural disaster) and leasehold insurance (to cover you if your lease is cancelled for reasons outside your control).
- Look for discounts:
Commercial property is, at the end of the day, a product that you’re buying, even if to keep just for a while. It is always great to get a discount on a product. If there are a lot of suitable properties in the same location, or if the land has gone unrented for a while; for the first few months, the landlord might be willing to provide you with rental concessions or a even a waiver of the rent. This is another area where your study of the location will come handy – use it in your negotiation. Moreover, if you rent the property for a longer period, the probability of you securing a discount will go up.
Court proceedings are long, hectic, and undoubtedly a ditch for money as well as energy. Your company is not just your own, your employees’ lives also depend on it. If one dispute makes your company bankrupt, it will ruin all these lives. Therefore, make sure you perform your own in-depth research before you sign a commercial lease agreement. More critically, have a commercial lease dispute lawyer to help you and guide you through everything so that number of mistakes made stays at a minimum.