If you’re renting or planning to rent a brick and mortar store, restaurant, bar, warehouse or office, you’ll need to enter into a retail or commercial lease. Retail and commercial leases are written in favour of Landlords, so Tenants need to be extra vigilant. Having managed the national lease portfolios of a number of some huge Aussie retailers, I’ve seen it all.
It is completely normal, and encouraged, for businesses to negotiate their retail or commercial leases. Being able to identify terms of your commercial lease that will impact you financially. Negotiating these terms is a crucial step to take before signing a new lease. You’ll likely be bound by the lease for many years and you’ll be building your brand reputation in that location. Having an unfavourable retail or commercial lease from the get-go will have a huge financial impact on you.
Here are some common traps in retail leases that can significantly cost Tenants:
1. End of lease clauses that require you to return your commercial lease in a better condition than when you received it.
Most people think they have to return a lease in the condition it was received in. It is actually very common for commercial leases to require return in “bare shell condition”. This may mean significant costs for removing an old tenant’s fixtures, repolishing the floors, painting walls and even refurbishing or replacing existing fixtures.
2. Misclassification of commercial leases vs retail leases.
As a Tenant, you receive more legal protection if your lease is considered a retail lease by law, rather than a commercial lease. This classification could be the difference between you paying land tax or not, receiving outgoings statements and notices and more. There is some great information available on the Victorian Small Business Commission website about the definition of a ‘retail lease’ under Victorian law here. If your premises is located in a different state then different definitions will apply. Always make sure to check the right legislation.
3. Cash security deposits (or bonds) that aren’t held in the agent’s trust account.
Security deposits can be a killer when you’ve set aside months of rent for them. If you can’t get it back at the end of the lease, it could be a huge financial problem. Unlike residential leases, in Victoria there are no laws about where these need to be held, besides in an interest-bearing account. If the Landlord refuses to return your money, you might have to take them to court or tribunal, which is costly and time consuming. It’s always better to have the security deposit held in the agent’s trust account. If your landlord changes agents, follow up with them to ensure your security deposit has also been moved to the new agent.
Similarly, if your lease requires a bank guarantee there can be traps too. A bank guarantee can be a more secure way for you to provide a security deposit. However, if they don’t have an expiry date, there’s no guarantee when you’ll get the money back. You don’t want that liability hanging over your head when you need to change leases and provide a new security deposit.
Key Takeaways
These are just the tip of the iceberg! Retail and commercial leases are not something you can just wing. You could be stuck in your lease for years.
We’re experienced in commercial and retail leases and are able to pick up on all the little details and traps. Having your lease reviewed and negotiated by an experienced lawyer can save you from significant long term costs. Book in a free consultation with me today to get your leases in order, or send us a message via our Contact Form.
