How important is a well-negotiated lease to your business?
The success of your business is not just reflected on the company tax returns or the financial statements. Depending on the type of business you are in, it may very well depend on a well-negotiated lease. This is Part 1 of a 3 Part series on this interesting topic.
Part 2 will be posted subject to engagement and interest of the community, if you want more, like, share and provide your comments on your own experience on the things you wish you had of known. In business for ourselves but never by ourselves I once heard.
PART 1 – A FEW GENERAL QUESTIONS YOU SHOULD ASK BEFORE SIGNING.
- Does the lease allow for flexibility? Will it have a Right of Assignment clause? This comes in handy if you think you may need to sell the business in the future. A Right of Assignment clause gives you the option of transferring the lease to a new tenant. Future proof your plans.
- Does the landlord have a mortgage on the premises and has the lending authority given approval for the lease? The underlining issue here is if the lending authority hasn’t given their approval for the lease to go ahead, they’re not legally bound by your arrangements and you may find yourself evicted with no leg to stand on.
- Are there permits, registrations or other licences which could affect the lease negotiations? For example, if your business set up depends on the approval of a planning permit or a liquor licence, the lease agreements should reflect and refer to this for your own protection to ensure you are not locked into a lease without the proper approval to trade.
- Have you been given all the documents which are legally required by law? This may include a copy of the lease itself; a disclosure statement; and a Small Business Commissioner Information Brochure.
- What is the duration and options to renew? Is this clearly stated? It is usually much cheaper to extend a lease than an early termination.
- What are the rental payment arrangements? Will this be a periodic payment through your bank? This option is most convenient and protects you from late payment charges.
- Are there or will there be other fees applied to the lease agreement? Although uncommon but it is worth asking this question before signing.
- Who is responsible for outgoings such as council and water rates, duty and content insurance, etc. A clear understanding of outgoings and who will pay for what is an essential part of the negotiation process which needs to be made clear well before anything is signed.
- Who is responsibility for maintaining the premises up keeps, fixtures, fittings and equipment inside your specific space as well as the communal areas? Is this responsibility shared between landlord and tenant?
- What about the cost of creating the lease? Who will pay for the creation of the lease? A common over pressuring approach by some landlords is to push this responsibility onto the tenant. It is important to note, you are not responsible for the landlord’s legal costs, in saying this, however, there could be other lease set up costs you maybe or will be asked to pay.
- When and how could the rent be reviewed and varied? Is it based on your turnover or based on profits; is it the Consumer Price Index; or is it a flat percentage increase. Get clear on these before sighing.
- Does the lease allow early termination? Leases are usually non-cancellable and if you find yourself in an early termination can be costly if you are not careful.
- Understand if the lease has a permitted use clause. This outlines how the premises can be used. If the lease has a Permitted Use clause, make sure it is not relevant to your operations or stops you from any future business development.
Your Accounting Partners are not commercial lawyers or experts in leases. We are experts in business, and leases is a very important aspect of a business viability. We recommend you back yourself with a team of experts, starting with an effective commercial lawyer, financial adviser and trusting accountant.
Your Accounting Partners By Huy Vuong (James)