10 tips for your next lease

By Ben Ryan, Lawyer at Hillhouse Legal Partners
| 3 min. read

Key takeaways

  1. Don’t be afraid to ask for terms that are to your advantage;
  2. Approach lease negotiation in the same way you would any other commercial agreement;
  3. Though lease terms are usually heavily favoured toward the landlord, landlords also want to fill their premises and this provides a strong footing for lease negotiations.

After you pay salaries to your employees, the rent for your premises will typically be the next largest expense for your business. A lease should be negotiated in the same way you would negotiate any other commercial agreement. While some Landlords may not accept any requested amendments, it is often surprising how far both landlord and tenant will move to reach a signed lease. Given that commercial leases usually favour the landlord, here are 10 things that you should be looking at for your next lease: 

  1. Engage a lawyer to negotiate the lease for you

This may seem self-serving, however, it is always easiest to negotiate a lease as early as possible. So, how early is too early? Even if the premises hasn’t been built we can negotiate your lease terms for you and have them reflected in an Agreement for Lease.

  1. Have you asked for a rent free period?

When negotiating a lease, it is important to remember that there is no harm in asking. The landlord’s response is often surprising, no matter how trivial the request. A rent free period is typically offered to entice tenants into premises and can be used as an off-set for moving and establishment costs in the first few months of a lease.

  1. Who is paying for the fitout of the premises and will the fitout be removed at the end of the lease?

It is rare for a premises to be perfect for each tenant without any changes being needed. So, who is going to pay for the fitout? The landlord may be more likely to contribute to the costs of fitout if they know they will gain the benefit at the expiry of the lease.

  1. How long do you want the premises for?

If you are willing to accept a longer lease then you may be able to negotiate a lower annual rent with the landlord. Of course, taking a lease that is too long has its own complications so make sure you don’t over commit.

  1. What is the permitted use?

The permitted use will affect how you are allowed to use the premises under the lease. As a result, it is important to negotiate a broad definition. If there is a potential for your business to expand in the future, ensuring that the permitted use covers such work is pivotal.

  1. Don’t take the premises on face value, do some searches and check the plans!

Your rent in a commercial lease is usually calculated on a per square metre basis, so why not make sure that the size of the premises is correct? This may be as simple as reviewing the plan for the premises (though make sure you check the date and title references) but is an important item to tick in your due diligence enquiries.

  1. Is the right to sublease appropriate for you?

Ultimately this is on a case-by-case basis. That being said, if there is a possibility of your intention to sublease in the future, a provision should be included in the lease to afford you the opportunity should you wish.

  1. Is a non-competition clause suitable?

Subject to the work your business performs, a non-compete provision in the lease may be suitable to prevent the landlord from leasing spaces in the building to competitors. Why give up valuable territory if you don’t have to?

  1. Is a right of first refusal appropriate?

A right of first refusal can require the landlord to present future spaces to you as they come available in the building, before they offer the premises to any other parties. This can afford your business the opportunity for growth at the premises which can be a significant value add, especially in light of moving costs if you out-grow a space.

  1. What are your obligations during and at the end of the lease in relation to maintenance and improvements?

During the lease you may be required to refurbish the premises periodically. Sometimes this can be as simple as a fresh coat of paint, though these provisions can also require significant works to be undertaken at the tenant’s cost.

Leases can also often impose obligations on the tenant to return the premises to the same state it was in at the start of the lease, commonly known as the “make good” provisions. If possible, it is advantageous to negotiate these requirements down as much as possible as the make good costs can be significant and a forgotten cost for tenants at the end of their lease.

It is important to review these provisions and negotiate the requirements so as to avoid any significant un-planned costs for your business.

A commercial lease is a significant financial commitment for any business and should be negotiated accordingly.

If you would like to discuss your next lease more, please contact us.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.