The success of your business may depend on a well-negotiated lease.
Retail Leases in Victoria among other laws is governed by The Retail Leases Act 2003 and accompanying regulations that complement the Act. If you are entering into a lease, it is important that you are aware of the regulations. Choose someone who has experience in the field of commercial property leasing.
If you are thinking of leasing property to establish your new business you should consult a solicitor. Even when using a solicitor, you should make absolutely sure that you understand all the provisions of the lease – ask questions until everything is clear and you are certain about the details.
Leasing law is extremely complex. It is very important that you consult a solicitor to help you negotiate your lease.
Experience matters – Contact VICTORY LAW
Indicative questions
1. Has the landlord given me all documents which are legally required by the Retail Leases Act 2003? The landlord must give a tenant: a copy of the lease; a disclosure statement; and a Small Business Commissioner Information Brochure.
2. What is the duration of the lease and have I got an option to renew? This needs to be clearly stated. It’s usually much cheaper to extend a lease than an early termination.
3. What will be my arrangements for rental payments? The most convenient arrangement is to set up periodic payments through your bank. This also protects you from late payment charges.
4. Will any other fees apply to the lease agreement? Although it’s uncommon, fees can be charged for things like monthly billing. It is worth asking this question before signing.
5. Will the cost of your rental payments be tax deductible? Before you sign, you should check the deductibility of rent and your tax liabilities with your financial adviser.
6. Who is responsible for rates, taxes, insurance and other outgoings; for example, contents insurance or council and water rates? Outgoings and who will pay for what should be an essential part of the negotiation process, and made clear before anything is signed.
7. Who is responsible for maintaining the premises, fixtures, fittings and equipment?
Responsibilities for the building and any equipment are often shared between landlord and tenant. The agreement should make this clear.
8. Who will pay for creating the lease? As the tenant, you’re not responsible for the landlord’s legal costs, but there could be other lease set up costs you will be asked to pay.
9. Does the agreement have an option to buy any leased goods or equipment? Be careful. Any agreement for you to purchase leased goods or equipment will invalidate your right to claim rent as a tax deduction.
10. How will the lease be documented? Ask the landlord if they can offer a ‘Master Lease’ which means there is no need to sign an individual document for each item being leased.
11. How will the depreciation limit affect rental payments? If buying a luxury car, this could affect the depreciation limit on your rental payments and be made clear before you sign.
12. When and how could the rent be reviewed and varied? This could be based on: your turnover or profit; the Consumer Price Index; or a flat percentage increase. It needs to be made clear.
13. Does the agreement allow the lease to be terminated early? Be very clear about this. Leases are usually non-cancellable and an early termination can be costly for the person who is leasing.
14. Will the lease have a Permitted Use clause outlining how the premises can be used?
If the lease has a Permitted Use clause, make sure it’s not relevant to your operations, or stop you from any future business development.
15. Will the lease have a Right of Assignment clause? If you think you may need to sell the business, a Right of Assignment clause gives you the option of transferring the lease to a new tenant.
16. Does the landlord have a mortgage on the premises and has the lending authority (for example, bank) given approval for the lease? If the lending authority hasn’t given their approval for the lease to go ahead, they’re not legally bound by it and may be able to evict you.
17. Are there permits, registrations or other licences which could affect lease negotiations?
As an example, if your business set up depends on getting a planning permit and a liquor licence, the lease agreement should refer to this.
18. When the lease expires, what are my options? Options are: renewing the lease; trading leased equipment for new equipment; and returning or offering to purchase leased goods.
Sources:
Retail Leases Act 2003
Retail Leases Regulations 2013
http://www.business.vic.gov.au