Retail and Commercial Leasing Advice
Entering into a retail or commercial lease is a major commitment. At Haarsma Lawyers, we provide tailored legal advice, helping you understand your rights, avoid surprises and protect your business interests.
Key Lease Terms You Should Know
Term and Renewal Rights
Every lease has a defined term (e.g. 5, 10 years) ond often one or more renewal/extension options. Exercising renewal rights correctly is key - if you miss notice deadlines or fail to comply with conditions, you may lose your right to renew.
If you are entering into a franchise agreement, ideally the term of the lease should match the term of the franchise agreement.
Rent, Rent Review, Outgoings and Bank Guarantee
Typically with a retail or commercial lease, your rent increases each year of the term. The rent may increase by a fixed percentage or CPI. Additionally, at the end of the term, but before renewal, rent will be increased to market value.
A lease typically sets out:
- Base rent, including how it's calculated;
- Review intervals (e.g. every 3 - 5 years) and review mechanisms (e.g. percentage increase or market valuation);
- Tenant outgoings (rates, utilities).
Generally you are committed to pay the rent for the term of the lease whether or not your business is successful or your business continues to operate from the leased premises.
In addition, most retail and commercial leases require you to provide the landlord with a bank guarantee for three to six months' rent. The lease will set out the conditions on which the landlord can call on the bank guarantee.
Permitted Use and Fit-out
The permitted use clause specifies the business that you can operate within the premises. If you are operating a franchise, the name of the franchise brand may also be specified in the permitted use clause.
Fit-out obligations will also be addressed - including whether the landlord will be making a fit-out contribution and the terms and conditions attached to the fit-out contribution (i.e. ownership of the fit-out).
Renewal of the lease may be dependant on updating or upgrading the fit-out.
Repairs, Maintenance and Make-Good
The lease should clearly specify who pays for structural repairs vs day-to-day maintenance.
In addition, the lease should clearly specify the make-good conditions on expiry or termination of the lease. You may be required to return the premises to the state that they were in prior to the fit-out.
Termination and Assignment
A lease will expire at the end of the term (if it is not renewed), or at the end of the renewal term.
Subject to statutory protections, the landlord will also have the right to terminate the lease early in certain circumstances, such as non-payment of rent, insolvency, failure to trade, or breach of essential terms.
A retail or commercial lease will not usually allow the tenant to terminate the lease. A tenant can normally assign (transfer) the lease with the consent of the landlord.
Step In Provisions
If you are operating a franchise business from the premises, the lease may also contain a step-in provision.
The step-in provision will allow the franchisor to "step-in" to the lease in certain circumstances, such as if the franchise agreement is terminated.
Lease Reviews
Leases are not just about paying rent and using space. A lease will allocate rights, risks, costs and responsibilities between you and the landlord.
We will review the lease agreement and we will:
- advise you of any commercial and legal risks of entering into the retail or commercial lease;
- ensure the the terms of the lease reflect the agreement reached between you and the leasor;
- assist you with any negotiations about the terms of the lease;
- assist you with the negotiation and resolution of any commercial or retail lease disputes.
