Understanding your retail lease
Marianna Idas the Principle Solicitor of eLease Lawyers talks about the importance of understanding leasing obligations.
Many people believe retail leases are standard and therefore they do not need the assistance from a lawyer.
Unfortunately, there is no such thing as a ‘standard retail lease’. Some states have templates, for example, in NSW they have the Law Society Lease which has been drafted by the NSW Law Society in a way that is protective to both parties. However, these templates are general and may not suit your business.
Leases should be tailored to your specific circumstances and contain terms and conditions that have been agreed by the parties. In general, leases are typically prepared by the landlord’s solicitor which means it is not uncommon for the lease to be drafted to the landlord’s advantage. Any lease provided to you can be improved to ensure you have added protection and any hidden costs are minimised.
If drafted correctly, your lease can be one of the main assets of your business, particularly if you plan on selling your business, use the premises as a shopfront or plan to stay in the same location for many years. Getting it wrong can be a costly mistake. For example, if a potential purchaser for your business finds any clauses in the lease that are to the tenant’s detriment, it could cause the sale to fall through as it is very difficult to have any terms in the lease amended at a later date.
Leases are complicated and contain many clauses which can impact your business in a detrimental way if not drafted correctly. The best way to protect yourself is with legal advice with a lawyer specialising in leases. A lawyer will help advise you of your rights and obligations under the lease. They will then negotiate and amend the lease to suit your needs and make it more favourable to you. Once the lease has been finalised and explained to you, your lawyer will then direct you to execute the lease.
Leases always contain hidden costs that you should be aware of. Many of these costs can be eliminated from the lease if you have the assistance from a lawyer who specialises in leases. It is understandable that you will want to save on costs when starting your business, but any costs paid to a lawyer could potentially save you more in the long run. For example, you could pay a lawyer a few thousand dollars but there is the potential to have them save you tens of thousands of dollars. Some of these savings are included in the below list:
- annual increase in rent – there are various methods to calculate this
- turnover rent
- outgoings for the premises
- outgoings for the common property
- maintenance items eg air conditioning
- make good – how the property is to be returned at the end of the term
- redecoration – eg painting (this could be an annual expense)
- providing an updated bank guarantee annually – bank fees apply here as well as the top up in the bank guarantee
- providing new bank guarantee if the landlord changes – bank fees apply
- promotion contribution
- default payments including interest
- payment of the landlord’s lawyer’s fees
- insurances including public liability, property insurance, loss of profits and any other insurances required by the landlord
- costs relating to obtaining consent from the landlord for an assignment of the lease and works to the premises
- landlord’s supervision costs of you undertaking works to the premises
- signage costs
- costs associated with operating outside of trading hours
- costs to ensure you comply with any clean energy laws
- hoarding costs for the premises when undertaking works
- installation of separate meters
A lawyer can advise you of the above costs and negotiate with the landlord to remove some of these items to help save you money in the long run.
It is your responsibility to comply with the lease and if you are not aware of what your obligations are then you could potentially be in breach of the lease. Breaches in the lease could result in the termination of the lease by the landlord and additional costs payable by you to the landlord as a result of your breach.
Invest in the assets of your business and ensure you obtain proper legal advice from a lawyer that specialises in leases, as your lease is one of the most important parts of your business.
This article first appeared in the June issue of National Liquor News.