So, you’re setting up shop somewhere else — literally. Well done you! We have no doubt that you’ve shortlisted a few prime spots on realcommercial.com and already started imagining your business filling the space perfectly. But, before you get too far ahead of yourself we need to ask: how is your grip on lease negotiation?
JFK has been quoted as saying “You cannot negotiate with people who say what’s mine is mine and what’s yours is negotiable.” In many ways that quote is applicable to lease negotiations with a commercial landlord. It’s rare, very rare, that you’ll walk away from a Commercial Lease negotiation with the upper hand. To help you out, we thought we’d break down five basic lease terms and what they mean, so you’re not heading to the negotiation table in the dark or baffled on what is flexible and what’s not.
1. Permitted use
In a nutshell, this stipulates how you can use the premises during the lease. This sounds really straightforward but can be quite broad, and get really complex especially if your business covers a range of activities.
2. Tenancy mix and competition
Ideally, the mix of businesses at your new location should complement each other and not compete. Let’s say your landlord owns multiple properties in a complex. After you sign on as a tenant, the once-vacant properties start to fill with businesses that offer exactly what you do. If you can, it’s a great idea to build an ‘exclusivity of trade’ clause into your lease.
3.Fixtures and fit-out
Fixtures and fit-outs are expensive. As a potential tenant, it’s important to remember that you have plenty of cards to play at the negotiating table and they’re not all money orientated. Fixtures and fit-outs can be a good bargaining tool. For example, if you’re a retail business in need of new fit-out then your landlord may offer to foot some (or all) of the bill in order to incentify you.
4. Repair and maintenance
It’s extremely rare to find a lease agreement that was drafted by the tenant. So naturally, the terms of the agreement strongly favour the landlord. Repair and maintenance can get contentious quickly. Often, repair and maintenance is the responsibility of the tenant. But expressions in lease agreements like “first-class state of repair”, “good and substantial repair”, “as a reasonable and prudent landlord would repair” etc, can get pretty subjective and potentially leave you out of pocket or worse. Clarity from the outset is imperative.
5. Assignment and sub-leasing
Usually, the landlord will state that the tenant cannot assign or sublet without their consent. If they do give their consent it is traditionally up to the landlord’s discretion to as to ‘who’ and ‘when’. The assignment and subletting clause can and should be modified by you (the tenant). As a tenant, the very least you should aim for is enough flexibility in the assignment and subletting clause to allow for mergers, reorganisations, and share ownership changes.
There is a lot to commercial lease negotiations, and without a legal representative who understands the contract, you (the tenant) can be left extremely vulnerable. Commercial lease disputes can get ugly but are often easily avoidable when you have two informed parties that clearly understand their obligations to each other. Good lease negotiation and agreements start with a mutual understanding that’s sealed in ink.
Why are we telling you this?
Sajen Legal introduced LeaseHelp earlier this year to help tenants secure a desirable outcome from their lease. Because leases go beyond the negotiation table and into the finer points like “whose responsibility is it to fix the air conditioning.” We set up LeaseHelp as a monthly fee, ensuring you’ve got strong and reliable legal backing throughout your tenancy. With LeaseHelp you have peace of mind and a level playing field with your landlord.
If you’re heading to a new place of business or setting up shop under a new lease, reach out to us here at Sajen Legal — we guarantee it’s worth your while.