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Have you recently found a commercial retail space to lease for your new business?
Are you unsure exactly how to successfully lease a commercial retail space?
As a business owner, it is important that you are across everything you need to know before leasing a commercial retail space.
Let’s break down the 9 things you need to know before jumping into a commercial retail lease.
What Is A Commercial Retail Lease?
A commercial retail lease is a contract setting out the rights and obligations of the owner of a property and the person who will occupy the premises.
The owner of the property is known as the landlord or lessor and the person occupying the premises is known as the tenant or lessee. Therefore, if you are a business owner who is leasing a commercial retail space, you will be known as the tenant or lessee.
Commercial retail leases exist in commercial spaces or buildings. For example, retail spaces at the bottom of a commercial building will attract a commercial retail lease.
So, now that you understand what a commercial retail lease is, let’s break down 9 things you need to know to effectively lease a commercial retail space.
1. Know The Terms Of The Lease
To effectively lease a commercial retail space, you must understand and commit to the terms of the lease.
As explained above, a commercial retail lease is a contract that sets out the rights and obligations of both the landlord and you as the tenant occupying the premises.
As both a business owner and a tenant, it is vital that you commit to a commercial retail lease only if you are certain you can oblige by its terms and it is beneficial to your business.
Commercial retail leases generally contain elements such as:
- Options to renew
- This is where you may have the option to extend your commercial retail lease after a period of time
- Terms of rent and rent reviews
- This includes how much rent you will be paying and whether your landlord can increase this across the duration of your lease
- What is deemed ‘permitted use’ of the premises
- This will detail what activities you can use the premises for
- Competition
- Details about whether there will or can be competition retail businesses within the same commercial building
- Costs
- Details of any costs you are expected to pay beyond your rent such as insurance and fit outs
- Repair and maintenance
- Details concerning who will be expected to repair and maintain the commercial building
- Details concerning landlord works that may cause disruption to your business
- Details about whether or not you can assign or sublease your interest in the lease
- What happens if you or the landlord breach the lease
- What happens if the commercial space is set to be redeveloped
- How to terminate the lease
Ensuring that all of the above elements are in your business’s best interest is important to ensure that you can meet your obligations under the lease.
For further details on elements of a commercial lease, see here.
2. Pay The Correct Amount Of Rent On Time
Once you enter into a commercial retail lease agreement you must pay rent according to the terms of the lease.
This means paying the correct amount of rent on time. If you fall behind, the landlord could prevent you from using the premises.
Depending on the specifics of your commercial retail lease agreement, there will likely be an annual increase in rent. As a business owner, it is important to be on top of your rent payments and know when the amount might change. You should not rely on your landlord to remind you that you owe an increased amount of rent.
3. Keep On Top Of Your Outgoings
Outgoings include expenses that you pay in addition to your rent. Common outgoings can include:
- Cleaning services
- Marketing and advertising services
- Security services
- Council rates
The type and amount of outgoings that you will have as a tenant will largely depend on the agreement you reached with the landlord in your commercial retail lease.
If you have agreed to pay outgoings in the commercial retail lease, it is your responsibility to ensure that you meet and pay these outgoings on time.
The NSW Small Business Commissioner provides more details on outgoings here.
4. Be Mindful Of A Security Bond
It is common for landlords to insist on a security bond in a commercial retail lease.
A security bond is generally an amount of money that the tenant pays to the landlord to hold as security for any costs that the tenant may be liable for at the end of their tenancy. If the tenant is not liable for any costs, the security bond is returned to them.
Whilst security bonds differ in amount between commercial retail leases, they are generally an amount that a tenant would hope to have returned to them. As such, as a business owner it is important that you are mindful of the security bond and any damage you may cause to the premises whilst occupying it.
5. Paying Legal Fees
The landlord may request that you pay the legal fees associated with the construction of your commercial retail lease.
Whatever the arrangement for payment of legal fees, it will be detailed in your commercial retail lease agreement.
As the tenant, it is not uncommon to pay the associated legal fees, however, you can attempt to negotiate this prior to signing the commercial retail lease.
6. Duration Of Lease
Generally speaking, commercial retail leases are a long term arrangement. For example, commercial leases are generally for more than 2 years and can be up to 10 years.
When negotiating the terms of your commercial retail lease, it is important to understand how many years you and your business will be required to reside in that premises.
Many leases have a minimum lease and option to extend.
For example, your commercial retail lease may detail that your lease is for 5 years with an option to extend for a further 3 years.
Once you have committed to a commercial retail lease and its minimum duration, it is important that you stick to this to avoid breaching your obligations under the lease. When it comes to the time when you are presented with an option to renew, you must consider the terms of your lease carefully and do whatever is best for you and your business’s interests.
7. Get Insurance
As a business owner and a tenant, it is vital to you and your business that you obtain the appropriate insurances.
Simply by being a business owner, you are faced with risk daily. You want to ensure that you safeguard your interests against any mishaps or accidents. Reducing your business’s risk with insurance will help your business reach its optimal potential.
Some common insurances that your business should consider include:
- General Insurance
- Public liability insurance
- Workers compensation
- Asset and revenue insurance
8. Stay On Top Of Repairs And Maintenance
Your commercial retail lease will detail who is responsible for the repairs and maintenance of the premises.
Whilst the landlord may be responsible for the general building maintenance, you as the tenant may be responsible for repairs of your business-specific equipment.
Whoever is responsible for repairs and maintenance, you should ensure that repairs and maintenance are actioned as soon as possible to limit any risk or damage to business.
9. Check In With Your Local Council
Prior to entering into a commercial retail lease, it is important to check in with your local council to ensure that your business is allowed to operate in that local government area.
Local councils may require your business to withhold certain permits to operate your business.
You can find the local government relevant to your business here.
Need More Help?
As a business owner, it is important that you are across everything you need to know before leasing a commercial retail space.
If you need help with:
- Setting up your business
- Buying a business
- A lease review
- Contract review
We are here to help.
Reach out to our team for a free, no-obligations chat at team@sprintlaw.com.au or 1800 730 61.
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