Before you sign a business lease, check the term and options, the rent and how it increases, outgoings, the security, the permitted use, and any personal guarantee.
Once the lease is signed, these terms bind you for the full term.
Negotiate before you sign. It is much harder afterwards.
1. The term and any option
Check the start date, the end date and the length of the term.
Check whether there is an option for a further term, and the exact window in which you must exercise it.
An option is exercised by written notice to the landlord within that window. A late or wrongly given notice usually loses the option.
The deadline is usually some months before the lease ends, not on the last day.
The landlord does not have to remind you.
2. The rent and rent reviews
Check the starting rent and whether it includes GST.
Check how rent changes during the term: a fixed increase, a CPI increase, or a market review.
Check how rent is set when an option is exercised. For a retail lease, if the rent on the option is set by market review, you have 21 days to exercise the option once the market rent is agreed or determined.
3. Outgoings
Check which outgoings you must pay, such as council rates, water, strata levies, insurance and cleaning, and the share you pay.
Ask for the estimate of outgoings for the year.
For a retail lease, outgoings you must pay should be set out in the landlord's disclosure statement.
4. The security
Check whether you must give a cash bond or a bank guarantee, and the amount.
For a retail lease, a cash bond must be lodged by the landlord with NSW Fair Trading within 20 business days of receiving it.
Check when the security will be returned at the end of the lease.
5. Permitted use and the premises
Check that the permitted use in the lease covers everything your business does.
Check with the council that your use is allowed, and whether you need development consent.
Check who pays for the fit-out, who owns it, and what you must remove at the end. Our article on make good clauses covers the end of the lease.
6. Guarantees, costs and registration
If you sign through a company, the landlord may ask for a personal guarantee from the directors. A guarantee makes you personally liable for the company's obligations.
For a retail lease, the landlord must pay the cost of preparing the lease. You may have to pay for changes you ask for after you return your disclosure statement.
A retail lease of more than three years must be registered within three months of being signed by both parties.
7. Demolition and relocation clauses
Check whether the landlord can end the lease early for demolition.
For a retail lease, the landlord needs a demolition clause in the lease and must give at least six months' notice. You can end the lease during that time by giving at least seven days' written notice.
Where people get caught
Signing the heads of agreement as if it were the lease
Heads of agreement often bind you to key terms. Read them with the same care.
Missing the option window.
Put the dates in your diary the day you sign.
Assuming the use is approved.
The landlord's lease does not mean the council allows your use.
Signing a personal guarantee without advice.
Your home and savings can be at risk if the company cannot pay.
Ignoring the make good clause at the start.
The cost at the end of the lease is set by what you sign at the start.
Common questions
Can I negotiate a lease offered on the landlord's standard form?
Yes. Most terms can be negotiated before you sign. Ask for changes in writing.
Do I need a lawyer for a short lease?
Every lease creates legal obligations. A short lease can still include a guarantee, a make good clause and outgoings.
When should I get the lease reviewed?
Before you sign any heads of agreement, and before you pay a deposit or bond.
Have your lease read before you sign. Call (02) 8062 6300.
This article is general information only. It is not legal advice for your situation.