Here are things to consider before you sign a lease agreement. Remember, a deed of lease is a document that sets out both a landlord and a tenant’s rights and obligations. They can be long and packed with legal jargon. It’s important to get professional help if you don’t have in-depth experience with commercial leases. Nothing is set in stone — negotiating good terms is worth the upfront work.
End dates and flexibility
Some common lease terms you may negotiate with the landlord include:
• The ability to expand or shrink the premises.
• Being able to lease more space in the building under the same terms, often called a first right of refusal.
• Sub-leasing — or assigning — part or all of the space to another business.
• How the property should be left at the end of the lease term, often called make good provisions.
Do ask about incentives.
This may mean asking the landlord for a rent-free period, more favourable terms and conditions or assistance with fit-out costs.
Fit-outs and maintenance
Be sure the lease is clear on what maintenance and repairs the landlord and the tenant will be responsible for. You will also want to check who needs to pay for any fit-outs, renovations or changes made to the premises. Often landlords will agree to pay for some of the fit-out as a signup bonus or incentive. The longer you sign your lease for, the more they are likely to commit to an incentive.
Bonds and security
Most landlords will want security. Commonly, this comes in the form of a bank bond or personal guarantee.
Bank bonds are a financial agreement a tenant has with their bank. Like an overdraft, it provides security to the landlord should you default on payments. To get a bank bond, you pay a fee to the bank for its risk — it’s not a cash payment held by the bank.
A personal guarantee is an agreement that the guarantor, usually the business owner, will be personally responsible for any debt the business cannot pay.
The higher the risk, the more security a landlord may require. This means landlords may ask for more security if you are leasing for the first time or don’t have a strong leasing history.
If the building is damaged
Make sure the lease is clear on what happens if the building is damaged or destroyed — or if access is limited due to a disaster, eg earthquake or fire.
Ask for a structural report. Get an expert to review it. If a building falls below a certain percentage, the lease may state the landlord needs to carry out strengthening work by a certain date.
Leases contain clauses that cover these scenarios. It’s best to consider and negotiate these terms prior to signing a lease agreement.
You might also want to discuss:
• renewal options
• what the likely expenses — or outgoings — are, and who is responsible for paying for what
• parking rights
• signage rights
• specific tenant use clauses
• any specific zoning regulations.
• Not using an agent or commercial lawyer — they have market knowledge on what’s available and can help you untangle complex lease agreements and deeds.
• Not checking upfront about how earthquake-safe the building is — if it’s not and there’s an earthquake, you may have to look for new premises.
• Not checking up the landlord’s history. If you can, speak to previous tenants or other tenants in the building.
• Committing before you’re ready — think about a serviced office if you’re not sure whether you’re ready to take on your own lease.