Legal Considerations When Leasing Commercial Property


When you are a tenant leasing commercial property, there are several important legal considerations to keep in mind to protect your interests and ensure a smooth lease experience. It is essential to negotiate any desired changes or clarifications to the terms of commercial property for lease AUS with the landlord before signing the lease. Also, make sure to consult with legal counsel to ensure your lease protects your interests and complies with applicable laws.

Here are key legal considerations for tenants that you should know when leasing a commercial property:

Lease Term and Renewal

Before signing any lease, thoroughly review all terms and conditions. Understand the lease term and any renewal options. As such, negotiate a term that aligns with your business plans and consider including favorable renewal terms.

Common lease terms for commercial properties range from one to ten years, but they can be longer or shorter depending on the agreement. For a startup or a business in a rapidly changing industry, a shorter lease term may offer flexibility, while a more established business with predictable growth may benefit from a longer-term lease for stability.

Consider your business plans and objectives when negotiating the lease term. Factors to weigh include the stability of your industry, the expected growth of your business, and the commitment you are comfortable with.

With regard to renewal options, these are clauses in the lease agreement that give you the right to extend the lease for an additional period. Favourable renewal terms can provide your business with stability and potentially save on future rent increases.

Rent and Escalation

Understanding the rent terms and escalation clauses in a commercial property for lease is essential for managing your budget and avoiding unexpected financial burdens. Therefore, determine the initial rent amount stated in the lease. This is the base rent you will pay at the beginning of the lease term.

Know the due date for rent payments. Commercial leases often require monthly payments, but they can vary. Implement effective cash flow planning to ensure that you have the necessary funds available to cover rent when it is due. This may involve setting aside rent money in a separate account.

Also, look for escalation clauses in the lease agreement. These clauses stipulate how and when rent increases will occur over the course of the lease. The lease should outline how escalation calculations will be performed. Understand the formula and the base year against which increases will be measured.

If needed, ask the landlord to provide examples of how rent escalations would have worked in previous years using the specified method. This can help you anticipate future increases.

Security Deposit

The security deposit is a sum of money that you, as the tenant, provide to the landlord as a form of financial security. This amount is typically specified in the lease agreement.Be clear about the exact amount required as a security deposit, and make sure it is explicitly mentioned in the lease.

Understand the conditions under which your security deposit will be returned to you. These conditions should also be detailed in the commercial property for lease.Common conditions may include:

  • Returning the property in the same condition as when you took possession, allowing for reasonable wear and tear.
  • Complying with all lease terms and obligations.
  • Providing proper notice when vacating the premises.
  • Paying all outstanding rent and fees.

Some states and localities require landlords to pay interest on security deposits held for a certain period. So,check applicable state laws to see if interest is required on commercial security deposits.If interest is required, make sure that the lease outlines the terms of interest payment, including the rate and when it will be paid.

Use of Premises

Define and understand the intended use of your business to the property. It is important that it aligns with the use described in the lease. If the use clause is unclear or if you have questions about whether your intended use is allowed, contact the landlord or property manager for clarification.

If the lease does not initially permit your intended use or if it contains overly restrictive clauses, negotiate with the landlord to amend the lease terms. You can negotiate for a specific allowance for your intended use. For example, if you plan to operate a restaurant, the lease should specifically allow for restaurant operations.

If you anticipate expanding your business or changing its nature in the future, negotiate the terms of thecommercial property for lease, allowing for such growth without needing a new lease. Define the potential scenarios under which your business may expand or change its nature. This could include adding new services, products, or locations.

Maintenance and Repairs

Identify and understand the specific maintenance and repair obligations outlined in the commercial property for lease. These obligations can vary widely and may include:

  • Routine maintenancesuch as cleaning, trash removal, and landscaping.
  • Repairs to structural elements, electrical systems, plumbing, and HVAC systems.
  • Maintenance and repair of common areas in multi-tenant buildings.
  • Restoration of the property to its original condition upon lease termination.
  • Compliance with safety and building code requirements.

Clarify which maintenance and repair responsibilities go to the landlord versus the tenant. For example, structural repairs and HVAC system maintenance may be the responsibilities of the landlord, while interior maintenance may fall to the tenant. Clarify the process for emergency repairs and who is responsible for covering the costs in urgent situations.

Once the lease is signed, develop a maintenance plan that outlines your responsibilities, schedules, and procedures for keeping the property in good condition.

Exclusivity Clauses

Negotiating exclusivity clauses in commercial property for lease can be a valuable strategy to protect the interests of your business and maintain a competitive advantage. For this, specify the types of businesses or services that you consider direct competitors and want to exclude from the property. Initiate discussions about exclusivity clauses early in the lease negotiation process. This allows you to set the tone and establish the importance of these clauses.

Determine the duration of the exclusivity. It could apply for the entire lease term or a specific period. Discuss any exceptions to exclusivity such as existing tenants or businesses that were in operation before your lease agreement. Specify the process for enforcing exclusivity, including remedies for violations such as rent reduction or lease termination.

It is advisable to consult with a commercial real estate attorney to draft and review exclusivity clauses. They can ensure that the language is legally sound and that your interests are protected.

Related Posts