Conveyancing & Property: Retail & Commercial Leases - Guides
Retail & Commercial Leases
5. Negotiating the Lease
Firm / Chambers:
Last updated: 29 Aug 2015
- Leases should be tailored by negotiation to suit the requirements of your business.
- It is important to identify your leasing requirements before you negotiate a lease. Identify your leasing requirements as follows:
- things that you must have and cannot do without;
- important things that will affect your overall business;
- things that do not really affect your business and on which you are willing to compromise; and
- things that do not affect your business at all.
- Do not feel obliged to accept the first offer put by a prospective landlord.
- Everything in the lease is negotiable. Usually the lease document has been prepared by the landlord’s lawyer and you can expect that the conditions it contains are those that are acceptable and favourable to the landlord. The extent to which these conditions can be negotiated will depend on a number of issues including:
- the degree of competition between potential tenants who may be interested in the premises you are looking at;
- the landlord’s financial situation;
- the benefits to be gained by the landlord’s agent;
- the intention of the landlord about the future of the building where the premises are located; and
- your own knowledge and ability to negotiate if you are not represented by a lawyer.
- The lease agreement should contain information about the premises to be leased such as:
- a description of the area of the space to be leased including a floor plan;
- the proposed rights, obligations and liabilities of both you and your landlord;
- conditions that apply to the use of the premises including:
- rent;
- other costs;
- length of the lease;
- the condition of the premises upon vacation; and
- any other issues regarding the leased area.
- The terms of the lease should provide your business with:
- security of occupancy;
- no restrictions on the day-to-day running of your business;
- no unexpected or additional financial expenses;
- protection from competitors to your business within the same shopping centre or group of shops; and
- the ability to conduct a profitable business.
- Some of the main issues that will need to be negotiated therefore include:
- the term of the lease;
- the amount and frequency of the rent;
- full details of the contribution you must make to the property’s outgoings;
- permitted uses of the property;
- the option to renew the lease (if applicable); and
- the bond or bank guarantee required (if applicable).
- Your permitted uses of the premises may be limited by the lease agreement. If you need to undertake certain activities on the premises you should ensure those requirements are permitted by the landlord and specified in the lease.
- If you fail to negotiate the right do something on the premises and it is not set out in the lease. you will need to obtain your landlord’s permission. Examples include:
- putting up advertising signs;
- installing additional shelves or partitions;
- the use of any common areas such as the space directly outside and in front of your store;
- the use of toilet facilities;
- car parking for staff and customers; and
- access points to your business.
- Ensure that the permitted use clause allows for the potential growth of your business. If you are running a restaurant the permitted use of your premises may not allow your business to include certain dishes in your menu.
- Consider protecting your business with an ‘exclusivity of trade’ clause in your lease. This would prohibit the landlord leasing to your competitors and give you the sole right to conduct a type of business or sell particular products in premises owned by the landlord.
- Negotiation involves going back and forth a number of times before finally agreeing on how the words of a clause should be drafted. A proposed lease document will be in ‘draft form’ until it is executed (signed by both parties).
- All agreements made during negotiations should be confirmed in writing. This includes:
- amendments;
- verbal statements;
- representations; and
- promises.
- If the landlord or their agent agrees to something and they do not put it on paper you should write to them setting out your understanding of what was said and ask them to confirm your understanding in writing
- For example you should get it in writing if the landlord verbally tells you they will allow you to add a particular product to the range of goods normally sold in your shop that is also being sold by another shop in the building.
- A lawyer can assist you in identifying the kinds of amendment you should consider asking for as well as the types of amendment that are likely to be agreed to. If any of the landlord’s conditions in the proposed lease are unacceptable to you and the landlord is not open to negotiation on them be prepared to walk away before signing.
- Once negotiations have been completed it is strongly advised that the parties do not prepare the lease documentation themselves. A lawyer will ensure the lease document is drafted in accordance with all of the issues agreed to during negotiations.
- When negotiations have finished and you have the final draft of the lease agreement step back and take another long, hard look at the whole project (not just the lease).
- If you feel confident everything has been done properly and you have a viable business proposition consider going ahead with it and signing.
- If you are at all unsure or uneasy about any aspect of the proposed lease even after negotiations it may be sensible for you to walk away.
- Remember your livelihood and lifestyle are at stake and risks to them should only be taken if they have been properly considered and all implications are fully understood.
- If the landlord is difficult to negotiate with this may indicate any future business relationship you share with them will be a difficult one which may cost you dearly. Listen to any ‘alarm bells’ in your mind.
- If the landlord’s conduct during negotiations has concerned you in any way talk to a lawyer or your local fair-trading or retail tenancy office before signing the lease.
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