Commercial fitout | Signing a lease | What to think about?

Creating a new interior for your business is an exciting time full of lots of commitment and determination. Prior to commencing your new commercial fitout, one of the first stages is signing the lease. Essentially, this is to secure the space as yours. Sometimes, this stage can be complicated and difficult to understand.

Ensure you get the contract checked by a professional advisor. The terms of a lease are subjective and should protect both parties.

We’ve compiled this helpful information as a guide. Should you need clarification on anything, please contact us for further information.

Is the rent appropriate

Check that the rent is at the market rate. Take all costs into consideration including service charges, insurance, legal and electricity costs. These costs will impact on your overall commercial fitout budget. Also confirm who will maintain and pay for replacement of services. This includes items such as air conditioning and ongoing maintenance of base building facilities.

Rentable square metres

This can include part of common areas such as lobbies and shared facilities. Check your leasable area documentation to understand what’s included. Ideally, it should be measured in accordance with the Property Council of Australia (PCA) Method of Measurement. It should also be measured for the type of property being leased (eg office, industrial or retail).

The lease term

Be aware if you sign a lease for 5 years you are obliged to pay rent for this term. Consider short term leases as they offer more flexibility.  However, you do need to take consideration of any initial outlay costs such as fit out expenses.

Make good clause

This clause places an obligation on you to return the space to exactly how you found it. Even if you make improvements, the landlord can charge you to return the space to its original condition. Likewise, you can be asked to upgrade services such as fire signage to current standards at the end of the lease.

Rent free period

A rent free period is a landlord incentive that means you don’t pay rent for a set period. This is often when first moving in, during the commercial fitout phase. Effectively, what this means is, you can create your new business interior prior to moving in and paying rent.

Contribution towards commercial fitout

This is another common landlord incentive. Contributions may include floor coverings, ceilings and services such as air conditioning.

Renewal options

Get advice on terms such as ‘fair market value’ as this will affect your rent when renewing the lease. Furthermore, if the market is slow, aim for a fixed increase.

Assign or sublet a lease

If the ability to assign or sublet clause is included in your lease, it lets someone else take over the lease. Alternatively, you can lease part of the space to others if you don’t need it.

Building rules and commercial fitout guidelines

Fit out guidelines sometimes insist on using particular contractors and consultants to carry out work. Often, there is an approval process for altering the existing space, and the costs for this will fall on you. Check to see what signage is permitted in the building and what may be provided by the landlord. Additionally, installing external signage requires an approval process. Furthermore, it may be subject to a sign license and planning application with the local council.

Permitted use

Review these details as there can be restrictions on how you can use the office or commercial space. If the space is not zoned to suit your business, you need planning and change-of-use approval. It is your responsibility to check the approved “use” with the local council.

Defaults, breaches and termination

Failure to pay rent can result in the landlord having the right to lock you out of the tenancy, without notice. The landlord can also claim losses for rent, reinstating the premises and re-letting the tenancy. Check to see if there are clauses that allow the landlord to terminate the lease early. This could have costly implications and affect the operation of your business.

Regarding services, ensure clauses for failure of, or maintaining them are clearly defined. This includes obligations to maintain temperatures or provide temporary cooling if the air conditioning breaks down.

Entering into a new commercial lease is a major investment for your business. We strongly recommend that you get professional advice before signing one.

Tenant representatives are experts in their field. Being independent, they work only for tenants and solely protect your interests. Tenant reps undertake property searches on your behalf. And, they often have knowledge of properties coming on the market before they are officially offered to lease. Additionally, they provide advice and negotiate the terms of a lease. Often with savings in rent and improved incentives provided by the landlord.

Generally, their fees are less than the savings they negotiate for you. Plus, they can potentially reduce the onerous terms of the lease agreement. Furthermore, they can assist with advice on future lease re-negotiations and associated legal matters.

Should you have questions regarding your commercial lease, our first recommendation is to contact us. We can also recommend a tenant representative or lawyer if required and offer further advice if needed.

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