What information must a landlord give me?
There are many things you need to think about before you sign a lease.
First, the landlord should provide you with a draft of the lease long before the time comes to sign it. This is so you can think about the rules and requirements described in the document and get advice. They might also provide a ‘disclosure statement’ that has details about the premises, what services the landlord pays for and what you might have to contribute. In some States and Territories, the landlord has to give you a copy
of the legislation or guidelines. Check with your State and Territory information resources if you are unsure. In all cases, make sure you get a draft of the lease to take away and think about.
What other matters should I think about?
Each retail lease tenant will have his or her own concerns. To find the answers to your questions you need to:
- talk to the landlord or their agent
- carefully read the material the landlord or the agent gives you
- understand the proposed lease
- talk to your local retail tenancy office, fair trading office, small or retail business association or get expert advice
- take into account your State/Territory retail lease legislation.
On the following pages is a series of tables identifying the sorts of questions and issues you may want to think about.
Working through the tables might help you remember some of the other things that might affect your business success. Also remember that some of the questions may not apply to your situation.
Some of the tables also suggest an approach to reviewing your lease and identifying what the issues or problems might be, and what you may or may not be happy with.
Some of the issues behind the questions are covered by retail leasing legislation so, while the legislation may not answer the question, it can tell you what is not allowed.
Note
What kind of special advice might be needed? Council regulations, car parking, opening hours, taxation advice (GST, depreciation), trade practices/fair trading, regulations (e.g. health, fire, occupational health and safety) – just to name a few!
1. Do your market research - what is available in the market?
Make sure that you take the time to research the market in the area you are looking at. Find out what the average rents in the area are, how these might differ between different buildings or centres and how these might differ depending on the location of the premises in relation to the building For example, does a particular premises have a particularly good street frontage with a lot of passing pedestrian traffic? Talking
to a real estate agent about different areas might be a good start. Also talk to current tenants in the area and current tenants of the landlord.
Remember that doing your market research and knowing about the current market conditions can do a lot to strengthen your bargaining power when entering your first lease as well as when negotiating a lease renewal with your current landlord. Market research is an ongoing activity and something that you should continue to do through the life of your lease – although do not let this take priority over monitoring both your and the landlord’s compliance with your current lease.
The table below sets out some example questions to consider. You might think of some more specifically applicable to your business. You can also use the table to record any research you have undertaken.
Topic | What have I found? |
---|---|
Rent
|
Add comments on what you have found about rent. |
Rent reviews
|
Add comments on what you have found about rent reviews. |
Term
|
Add comments on what you have found about lease terms. |
Lease incentives
|
Add comments on what you have found about lease incentives. |
Vacancy rates
|
Add comments on what you have found about vacancy rates. |
Add other questions specific to my business? |
2. Consider your business requirements - what does my business require?
These are things to think about before requesting and receiving a copy of the proposed lease.
Once you have a better understanding of what is available in the rental market, it is time to focus again on your business. Is the space you are looking at the right space for your business? As with anything, there
will be trade-offs you will have to consider, for example, the premises with the best street frontage and profile
might come at a higher rent than a premises that is tucked around the corner. If the premises is tucked around the corner, will you need rights in your lease to advertise outside of your premises, on other parts of the landlord’s building or land?
When considering the costs your business can afford, remember that this will be more than the rent payable under the lease. Other costs to consider include outgoings, costs for separate services (such as electricity (if separately metered), telephone and the like), required bond monies, cleaning costs, registration fees and costs in relation to requests for the landlord’s consent to any works or signage etc.
The table below sets out some example questions to consider. Again, you might have more questions that are specific to your business.
Topic | My comments |
---|---|
My Business plan
|
Add comments on what you have found about you business plan. |
Licences
|
Add comments on what you have found about licenses. |
The space
|
Add comments on what you have found about the space. |
Physical condition of the space
|
Add comments on what you have found about the physical condition of the space. |
Term
|
Add comments on what you have found about term of lease. |
Fit out
|
Add comments on what you have found about the fit out. |
Add other questions specific to my business? |
3. Receiving and reviewing a lease
You should always have a solicitor review the general terms and conditions of the lease before you sign it, to make sure that it is a balanced and fair agreement. However, you can also review the lease for yourself as well. You need to be sure that you understand and are happy with each of the terms and conditions of the lease. Once you have reviewed the lease for yourself, you will know what you do have a good
understanding of and will be able to narrow down the questions that you need to ask someone else to assist with.
The two tables below provide a useful structure to begin reviewing the lease to help you decide if it meets your needs. The tables separate out:
A The core lease details – these are the main commercial terms of the lease and are the best starting point when reviewing a lease.
B The other terms and conditions of the lease – these terms and conditions make up the balance of the lease document and govern the general relationship between the parties.
The tables give you an opportunity to identify the relevant lease clause that deal with the particular topic and to note any concerns/questions that you might have.
Don’t forget to read the definitions section for all the defined terms within the lease – usually these are the capitalised terms throughout the document. Defined terms can contain a lot of detail and can significantly affect the meaning of a clause.
Topic | Lease clause | My concerns/ questions |
---|---|---|
Premises
|
Add the clause wording or reference number here. | Add comments on what you have found about the premises. |
Term
|
Add the clause wording or reference number here. | Add comments on what you have found about the terms of lease. |
Purpose / Use
|
Add the clause wording or reference number here. | Add comments on what you have found about the purpose or use. |
Rent and rent reviews
|
Add the clause wording or reference number here. | Add comments on what you have found about the rent and rent reviews. |
Outgoings
|
Add the clause wording or reference number here. | Add comments on what you have found about the outgoings. |
Required security
|
Add the clause wording or reference number here. | Add comments on what you have found about the required security. |
Insurance obligations
|
Add the clause wording or reference number here. | Add comments on what you have found about the insurance obligations. |
Ability to deal with the lease
|
Add the clause wording or reference number here. | Add comments on what you have found about the ability to deal with the lease. |
Make good
|
Add the clause wording or reference number here. | Add comments on what you have found about the make good portion of the lease. |
Registration of the lease
|
Add the clause wording or reference number here. | Add comments on what you have found about the registration of the lease. |
Topic | Lease clause | My concerns/ questions |
---|---|---|
Access
|
Add relevant lease clause | Add your concerns or questions about access. |
|
Add relevant lease clause | Add your concerns or questions about fit out. |
Relocation
|
Add relevant lease clause | Add your concerns or questions about relocation. |
Other expenses
|
Add relevant lease clause | Add your concerns or questions about other expenses. |
Security of the space and stock
|
Add relevant lease clause | Add your concerns or questions about security of the space and stock. |
Landlords’ rights
|
Add relevant lease clause | Add your concerns or questions about Landlord’s rights. |
Resolving problems
|
Add relevant lease clause | Add your concerns or questions about resolving problems. |
Preconditions
|
Add relevant lease clause | Add your concerns or questions about the preconditions. |
Centre rules
|
Add relevant lease clause | Add your concerns or questions about centre rules. |
Restrictions on trading
|
Add relevant lease clause | Add your concerns or questions about restrictions on trading. |
4. Negotiating the lease
Most landlords will have a preferred lease document that they will prepare and provide. However, this does not mean that these are the only terms and conditions that the landlord will agree to. You should feel comfortable with requesting amendments to the lease – your solicitor (or retail tenancy adviser (see relevant organisations at the back of this booklet)) will be able to assist in identifying what kinds of amendments you should ask for and what types of amendments are likely to be agreed to.
The below table identifies just a few example common clauses and the types of amendments that might be sought in relation to those clauses. It is very important though that ALL the clauses in the lease be reviewed
– not just the ones mentioned below.
Another good source of information is obtaining a copy of a lease previously granted by the landlord to another tenant. If the landlord’s leases are registered on title, you can obtain a copy from the relevant titles office (normally at a fee).
Clause and issue | What to look out for and possible amendments |
---|---|
Option clauses
|
Often a condition will be included in relation to the tenant not having breached the lease during the previous term. Such a clause might be amended to require only that the tenant is not in breach of the lease at the time when the option is exercised (and only a breach that has been previously notified to the tenant). This protects the tenant from being ‘ambushed’ by the landlord claiming that the tenant has breached or is in breach of the lease and only raising this when the tenant tries to exercise the option. |
Costs clauses
|
Clauses which simply require the tenant to pay the ‘costs’ of the landlord should be amended to include: • that those costs be ‘reasonable’; and • that the landlord be required to provide evidence of the costs before the tenant is required to pay for the costs. |
Indemnity clauses
|
It is important to closely review any indemnity clause, for example, an indemnity provided by a tenant to the landlord should exclude any damage, loss, injury or death t hat is caused by the act, negligence or default of the landlord (i.e. anything that is the landlord’s fault). |
Termination for breach rights
|
Review the notice requirements in relation to a right to terminate the lease. A notice giving a ‘14 day period’ to remedy a breach is a common approach. Landlords are often less willing to agree to a notice and ‘right to remedy’ process where for example, the breach is for the non-payment of rent (as opposed to, for example, being in breach of an obligation to be open for business between particular hours). |
When renewing a lease, a helpful clause would relate to when the landlord must notify the tenant of the new rent. | This is about being mindful that some clauses impact on other clauses e.g. option clauses and market rent review clauses. A lease might have a clause that allows a market rent review (mrr) at the commencement of an option term. It is important to review the mrr clause to ensure that it specifies how the new rent will be determined and when the landlord must notify the tenant of the new rent. If the mrr is due at the start of an option term, it is important to ensure that the tenant is notified of the new rent well before the beginning of the period for exercising the option. Otherwise the tenant could be in the position where they have committed to the further term without knowing whether their business can afford the new rent. |
CASE STUDY
Environmental obligations in leases
Amie is given a draft lease which contains a clause which requires her to co-operate with the landlord to achieve and maintain the landlord’s environmental objectives. How will this impact on Amie’s business?
‘Green’ provisions are becoming increasingly common in leases but they do not always contain clear details as to what is required. Even if Amie does want to support environmental initiatives, she should ask additional questions before she signs the lease, such as:
What are the landlord’s environmental objectives? Who bears the cost if new equipment is required?
Will this limit the types of goods I can sell or the types of materials I can use?