Commercially leased property is an agreement between the landlord and the tenant about the rights and responsibilities of a commercial premise. For example, an agreement on how a tenant will conduct the business, storage and manufacturing of the business.
With Commercial leasing, there are two kinds of commercial intent, which are:
- Non-Retail Lease: Is a premise where it is not used for selling goods and services to the public, but is used for other business purposes like storage and offices.
- Retail Lease: Is a premise where goods and services are sold to the public. For example, cafes or restaurants.
In a Commercial Lease agreement, the following are some of the basic terms and condition that should be set out and enforced:
- The parties that are involved.
- The amount of rent to be paid.
- The date of when the rent should be paid.
- The time period of the lease.
- Expectations from the tenant during the leasing.
- Expectations from the landlord during the leasing.
- Any other terms and condition.
While Commercial leasing and Residential leasing include very similar clauses, it is also quite different in terms of the condition. While Residential leasing can be easier to negotiate and understand, both landlords and tenants should be mindful of all the negotiating terms in a Commercial lease.
Knowing the Terms and Conditions of a Commercial Lease
As a tenant, it is extremely important that you understand the terms and conditions of the lease, and that they are consistent with your personal understanding of the lease. Tenants are mainly interested with the during of the lease, and the rental amount that is due, therefore even before you sign the lease make sure these terms are clear and you fully understand it. Every lease commercial agreement will clearly outline what you are able to do, and what you are not able to do. Therefore, before signing the agreement, make sure that your lease will allow you to conduct business as you would like, without any restriction.
Considerations that tenants should be aware of:
- Make sure that you fully understand what will the landlord insure and then figure out if you will need take out any other insurance.
- Make sure you consider the zone of the premise, as some zones have regulations on the type of businesses that can operate in that area.
- If the premise has a mortgage, you need to make sure that you get consent by the mortgagee.
- If you decide to lease a property under a Non-Retail Commercial lease, you may be subject to land tax, which is judged on a single holding basis. However, if you are under a Retail Commercial lease then you won’t be subject to land tax.
- If you have signed the contract, make sure that you take numerous photos of the property, including; rooms, offices, bathrooms and external photos. Therefore, at the end of the lease you will know how to bring it back to its original condition.
As a Landlord, you should be fully aware of the terms and conditions that you present. Some of the areas that you must be aware include:
- The type of insurance that needs to be taken out for the property, so that any damages will be covered.
- Understanding the rental income, meaning you are aware of when the rental payments are due, what the correct amount is, and if tenants do not pay on time then what are your rights.
- Ensuring that your tenant is using the premise in a legal manner, and not for any illegal practices.
- Ensuring that the lease agreement allows for a sufficient bond, as the amount of the bond will be the first place you resort to, if you have to repair any damages to the property after the lease agreement is over.
What Needs to be Included in the Lease Agreement
As a tenant, when negotiating a lease agreement, your intention should be:
- That the way the property can be used is clearly defined in the agreement, so that you can conduct your business as you like.
- That you avoid any conditions that are linked to the Principal Properties and Securities Act (PPSA), as the landlord can place a charge over any of your business assets.
- That no general terms and conditions are excluded in the agreement
- That you try to negotiate for a minimal bond.
As a Landlord, when negotiating a lease agreement, your intentions should be:
- That your agreement will allow you to place a charge over the tenant’s premise under the PPSA.
- That the obligations to pay insurance and any rates is small.
- That the bond amount is adequate to cover any repairs or damages
- That the agreement includes proper increases in rental income throughout the duration of the lease.
At Wise Real Estate Advice, we ensure all boxes are ticked and that sincere care is taken when providing a buyer with the wise advice and action required throughout the buying process. To speak to one of our friendly buyer’s agents click here to fill out an enquiry form or just simply call us on 1300 00 WISE.
By Mark Ribarsky