What is a Commercial Lease Agreement?

A Commercial lease agreement is a legal contract between a landlord and a third-party (whether an individual or business) seeking to rent the landlord's commercial property

Commercial properties encompass various spaces, such as offices, warehouses, and storage facilities, excluding residential premises.

 

Given that this agreement outlines crucial lease terms and dictates how your business can operate within the property, it is vital to engage in careful negotiations with the landlord, ensuring that the terms align with your business needs.

It is also equally important for any landlord to ensure their lease agreement is drafted property, and their rights are protected and the law complied with.

Considerations Before Signing a Commercial Lease

Prior to finalising your commercial lease agreement, it is crucial to conduct a thorough review. Here are essential steps to consider:

• Physically inspect the property: while it may seem obvious, many business owners rely solely on online pictures, assuming it is sufficient inspection. To make an informed decision for your company, visit and assess the space in person

• Research market rent: after inspecting the space, you will have a good idea of whether the proposed rent is reasonable. If you are new to commercial leases, seek advice from knowledgeable individuals familiar with market rates to help you negotiate and establish cost parameters upfront, avoiding unexpected rent increases and extra costs

• Carefully review the lease contract: the lease contract contains all the critical clauses outlining the agreement between you and the landlord. It covers responsibilities such as maintenance, repairs, improvements, termination requirements, and extra costs. Pay special attention to the lease duration, as you will be legally bound for the agreed-upon time.

Determining the Lease Length

Long-Term or Short-Term? Consider your business goals to decide between a long-term or short-term lease. A short-term lease offers flexibility for accommodating business growth and uncertainties, avoiding long-term financial commitments. However, a lack of long-term stability and potential renegotiations may be drawbacks. A long-term lease is suitable for established businesses seeking a stable market presence and future planning without unexpected rental terms due to ownership changes.

Security

Landlords typically seek personal guarantees and a bank guarantee equivalent to 3-6 months' rent as security from tenants. On the other hand, tenants generally aim to provide less security. As a general guideline, if tenants offer a personal guarantee with a 3-month bank guarantee, this is typically considered reasonable. However, in the absence of personal guarantees, a larger bank guarantee is usually deemed appropriate.

Gross or Net Rent?

A "Gross lease" typically incorporates "most" outgoings in the rent, while a "Net lease" usually does not include outgoings. It is essential to thoroughly understand the definitions and what is and is not covered as part of the rent.

Insurance

It is crucial to clarify the insurance responsibilities of both the landlord and the tenant. The Lease may specify certain requirements for the tenant's insurance coverage, which might necessitate amendments to most insurance clauses. The commercial standard is usually $20 million depending on the circumstances and the lease.

Assignment Rights

It is important to determine whether the tenant and guarantors are released from their obligations if the lease is assigned. The Retail Shop Leases Act may offer some limited circumstances for the tenant's release, but not for the guarantors. Many Leases may require amendments in regard to assignment to better cater for the needs of the parties.

Commercial Lease Options

Lease options allow you to decide whether to renew the lease before it ends, usually on the same terms as the original lease. They offer flexibility without immediate commitment. Ensure the lease contract includes an option clause if it's important for your commercial interests. Properly exercise the options within the required period, known as the option exercise period, to secure favourable terms.

Consider Co-working & Shared Spaces

If your business is not ready for a dedicated office, co-working spaces can be an excellent alternative. Shared office spaces provide flexible monthly payments at a fraction of the cost of traditional offices.

Co-working spaces often include essential facilities, such as desk areas, meeting spaces, and printing services, saving you from additional expenses. They are ideal for startups and small businesses without the financial means for a lease agreement, usually offering desk or space licensing agreements for an agreed period.

Landlord Assistance

If you are a commercial lease landlord, our services are tailored to assist you across Queensland. We offer comprehensive landlord assistance, including:

• Preparing your commercial lease

• Ensuring compliance with disclosure requirements

• Handling lease extensions and variations

• Enforcing landlord rights, which may involve issuing Notices to Remedy Default

• Ensuring compliance with relevant legislation or regulations

• Registering leases that extend beyond three years (or include options to renew)

• License agreements and negotiations, such as those related to car parks and footpath dining or even signage arrangements

For landlords dealing with retail shop leases, our experienced commercial leasing lawyers are here to help you across Queensland, including Brisbane, Logan, and the Gold Coast. Our services encompass various aspects, including reviewing and amending lease documents, providing legal advice, addressing Notices of Default, and assisting with dispute resolution while ensuring compliance with the Retail Shop Leases Act 1994 (Qld).

Tenant Assistance

If you are a tenant in a retail shop lease, we extend our support across Queensland, offering the following services:

• Providing a Legal Advice Report on the Retail Shop Leases Act

• Reviewing and advising on lease terms

• Negotiating lease terms to potentially yield significant cost savings

• Assisting with the proper exercise of renewal options as per lease terms set out in the lease

• Handling lease extensions or assignments

• Facilitating sub-leases and lease surrenders

• Assisting in structuring security arrangements, including security deposits, bank guarantees, and personal guarantees, to protect your assets and interests

• Registering leases that extend beyond three years (or include options to renew)

• License agreements and negotiations, such as those related to car parks and footpath dining or even signage arrangements

Reviewing a Commercial Lease

When moving into new premises, one of the crucial steps is negotiating and finalising a commercial lease. However, before putting pen to paper, it is highly advisable to seek the expertise of a legal professional for a thorough review of the document.

Equally, a landlord should always consider their lease agreement are reviewed due to industry changes or changes in the law.

Commercial leases establish legally binding commitments between a tenant and a landlord, which can extend over several years. As a tenant, it is paramount to have a clear understanding of the long-term implications of the lease. On the flip-side, as a landlord, it is paramount to ensure the terms of the commercial lease protect you.

Additionally, commercial lease agreements often outline procedures for dispute resolution. Familiarising yourself with this process is essential in case any issues arise in the future.

To ensure that your commercial lease aligns with your best interests and provides adequate protection for your business, it is prudent to have it examined by a qualified lawyer.

Our team of commercial leasing lawyers are always on hand to assist in the drafting, advising, negotiation and execution or registration of your commercial lease.

What Do RHC Solicitors Charge for a Commercial Lease Review?

Lease reviews generally start at $1,500 + GST. This all-inclusive offering encompasses a meticulous legal assessment of both the commercial lease and any offer to lease. In some cases, this estimate may not be appropriate. Particularly where the commercial lease is extensive or out of the ordinary.

As part of the process,  we also offer a beneficial phone consultations with a commercial leasing lawyer or alternative a face-to-face consultation. During these consultations, we will attentively listen to your instructions and provide advice on all the pertinent rights, obligations and risks that you should be aware of.

Why Choose RHC Solicitors?

Selecting the appropriate length for your commercial lease depends on your business's future plans. As a small business or startup owner, these initial decisions are vital to your company's success.

Both long-term and short-term leases have advantages suited to different growth scenarios. Negotiate terms wisely with your landlord before entering the lease agreement.

At RHC Solicitors, our commercial leasing lawyers provide guidance on determining the lease length or negotiating terms, and we do this whilst keeping in mind the importance of striking a good deal.