The term “Commercial Lease” is used to describe a lease of commercial premises. Commercial premises can be anything from an office suite or building, a hotel, vacant land or a factory.
Most of the legal work involving leases in New South Wales is carried out with Commercial Leases because they often underpin substantial commercial operations and revenues. There is no restriction on the contents of a Commercial Lease and there are Commercial Leases in existence of more than 100 pages.
A Commercial Lease needs to address current issues and it also needs to contemplate contingencies or new issues which may develop in the future. The enactment of the GST Legislation in 2000 is an example of an issue which created concern for some landlords who had long leases which had not contemplated the introduction of GST. There are examples of landlords who were unable to recover GST from the tenant and were forced the bear the cost of GST.
Set out below is a useful checklist of the main issues that should be considered when drafting and negotiating a Lease of commercial premises:
Commercial Lease Checklist:
- What are the premises? Do they include car spaces, plant and equipment and any fixtures and fittings?
- Does the landlord in fact own the premises? It is advised to obtain a title search.
- Are there any parties other than the landlord and tenant who need to be involved with the Lease? For example, if the tenant is a corporation, should its directors provide personal guarantees? Does the mortgagee need to consent to the Lease?
- What is the length of time of the Lease? Is the tenant to be given an option? Are there any circumstances when the term of the Lease could be reduced if, for example, the premises were destroyed?
- What is the rent, when is it to be paid and how is it to be paid? When is the rent to be reviewed and how is it to be reviewed? The most common methods of rent review are by reference to the Consumer Price Index, to the market rent to be agreed or determined by a valuer or by a fixed rate increase.
- What other expenses or payments are to be made by the tenant? Is the tenant to reimburse the landlord for outgoings, cleaning charges and GST?
- Should the landlord obtain further security such as a Bank Guarantee or a Security Deposit?
- In what circumstances is the tenant able to assign the Lease or sublease the premises?
- What are the obligations of the tenant in relation to repair and maintenance of the premises and when must the tenant redecorate the premises?
- What items are to be insured by the tenant?
- Is the tenant able to use the premises for any purpose or should the permitted use of the premises be restricted?