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Businesses often require a physical space of their own to operate. After all, not all business operations can be run from home.
If you’re a business owner and find yourself needing a place to conduct your business activities, then you may need to enter into a Commercial Lease Agreement.
A Commercial Lease Agreement will set out the terms for how business is conducted on the premises, from rent to repairs and maintenance. So, it’s especially important to know everything about how the arrangement will work for your business before you go ahead and sign a lease.
In this article, we’ll discuss some of the details of commercial lease agreements that you need to be aware of – keep reading to learn more.
What Is A Commercial Lease Agreement?
A commercial lease agreement is the rental agreement for a property that will be utilised with the intention of generating a profit. This includes businesses, warehouses, factories and service providers.
Commercial lease agreements are different to other types of leases, as they can be customised more than other types of lease agreements. For example, a rental agreement will usually permit full use of the property in question at all times, however, commercial lease agreements can place limitations on hours and particular parts of the premises.
| Example Isla is renting a property for her dentistry clinic. The terms of her commercial lease agreement allow her business to operate between 8am-6pm and use a portion of the parking spaces available to the building. Furthermore, the agreement only allows her to practise dentistry on the premises and no other services.This is an example of how a commercial lease agreement can be tailored or adjusted to be either more or less restrictive. |
How Is A Commercial Lease Agreement Different To A Retail Lease?
It should be noted that retail leases and commercial leases are not necessarily the same thing (although it isn’t always entirely black and white).
A retail lease is also used for commercial purposes of garnering a profit through business activities. However, as there is a buying and selling element, retail leases are considered to be different. In NSW, retail leases are regulated by the Retail Leases Act 1994 (NSW).
Do I Need A Commercial Lease Agreement?
Yes, if your business plans on operating from physical premises, a commercial lease agreement is essential. As a business and a renter, ensuring the agreement is in writing will give you the rights you are entitled to as a tenant.
If you don’t secure a commercial lease agreement for a premises, then you can be potentially putting your business in harm’s way. For example, a commercial lease agreement can guarantee that your business is entitled to use that premises for a certain period of time.
However, without a written contract, it can be hard to enforce any rights to those premises. So, if a landlord decides to evict you without any warning, they likely will be able to as you are not protected by any written confirmation of your rights which both parties have agreed to.
To avoid getting the rug pulled out from underneath you, it’s crucial to have a commercial lease agreement in place. If a potential landlord refuses to sign one, consider finding an alternative location.
What Does A Commercial Lease Agreement Cover?
A commercial lease agreement will cover the basics of any rental agreement, such as:
- Rent
- When rent is due, and how it should be paid
- Any increase in rent
- Maintenance and repairs
- Outgoings
- What will constitute a tenant breach, and how long the tenant has to remedy that breach
- Indemnities
- Guarantees
- Damage and destruction
- Subleasing rights
- Termination
A landlord and tenant can also negotiate the terms of a lease agreement prior to signing so that the terms are attractive to both parties.
It’s worth getting a lawyer to review your commercial lease agreement before you finalise any dealings. This way, you can ensure you’re in the safest position possible before you make it official.
What Does Permitted Use Mean?
Permitted use refers to the idea that the commercial lease agreement should permit the renter to use the premise for what they intended to use it for.
This scope of permitted use is usually set out by the landlord and put into writing through the lease agreement.
| Example Diana wants to rent a space where she can open her own garment factory. She’s found the perfect space, however, after reading the fine print on the rental agreement, she notices the landlord doesn’t allow heavy and noisy machinery to be used on the premises. Diana either has to renegotiate the lease agreement before signing it or find a different space. |
If a tenant conducts business activities that are not in line with what the landlord has outlined as ‘permitted use’ in the commercial lease agreement, these could constitute grounds for terminating the agreement altogether.
In some cases, a tenant can obtain consent from the landlord and their local council to conduct activities that are outside the scope of permitted use.
What If I Want To Sublease My Business Premises?
Subleasing your business premises requires the permission of the landlord. The commercial lease agreement will usually cover whether or not subleasing is permitted. Even so, there may be conditions attached to it such as seeking the approval of the landlord first.
If your lease agreement does not cover subleasing, then you can always obtain the approval of your landlord. If they agree, make sure to get it in writing.
Alternatively, you can have an expert lawyer review your sublease agreement. At Sprintlaw, our Sublease Review Package includes a review of your Head Agreement to ensure that your subleasing activities are compliant with your overall lease.
Can I Renew Or Extend My Commercial Lease Agreement?
When commercial lease agreements are nearing their end date, it’s not unusual for businesses to want to extend the lease. After all, if the lease arrangements and premises are working for you, then there may be no reason to change.
If this is the case, then it’s important to have a new lease agreement or an extension added to your existing agreement. Renewing the agreement means the terms and conditions of the original agreement can be altered by either party, allowing you to proceed with a new agreement in place.
Attaining the help of a legal professional is essential when doing this, as it’s important to have your agreements reviewed by a professional to make sure they are in your best interests. Talk to us today if you need to get the details of your Extension of Lease in writing.
Can I Get A Lawyer To Review My Commercial Lease Agreement?
Yes, it’s always advisable to have a legal professional review any kind of lease agreement prior to signing it. A commercial lease agreement is particularly unique as it contains elements that more ordinary rental agreements may not.
At Sprintlaw, we offer a Commercial Lease Agreement Review package where our expert lawyers can ensure the terms of your commercial lease agreement are in your favour, and minimises risks of liability on your end.
A good review will usually involve consideration of the following:
- If the premises is able to be used for the intended purpose
- Whether the tenant is comfortable with outgoings
- The requirement for landlords to act reasonably when giving out approval and consent
- A notice for termination of repairs if there is damage
- Make sure indemnities are reduced in light of a landlord’s negligence
- Oversee the costs are what were agreed upon
- Limiting power of attorney clauses that require tenants to appoint their landlord as an attorney
Lawyers specialising in commercial leases can look over this and a lot more – get in touch if you would like help!
Key Takeaways
The commercial lease agreement you enter into will be central to how your business operates, so it’s important to get one that works for you. Seeking the help of a legal professional is wise in ensuring you’re in the strongest position.
To summarise what we’ve discussed:
- Commercial lease agreements are for premises where business is being conducted (except for buying and selling – this is a retail lease agreement)
- Having a commercial lease agreement in place is an important step in protecting your business
- It’s essential to get a lawyer to draft or review your commercial lease agreement for you
- If you want to sublease, you will need the consent of your landlord
- Commercial leases can be extended and renewed – it’s equally important to have these documents reviewed by a legal professional
If you would like a consultation on commercial lease agreements, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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