06 May 8 tips when negotiating a commercial lease
1. Lease Cost
Determine the monthly cost of the leased premises by multiplying the square metres of the premises by the price per square metre and then divide this number by 12. The resulting figure is the monthly cost. Negotiate rent free periods or a discount on the annual cost to limit your costs.
2. Term of the Lease
Landlords generally prefer long-term tenants. Due to this the longer the lease the more benefits you may be able to negotiate.
3. Permitted Use
This is the use you may undertake in the premises and it is specified in the lease. Negotiate a broad permitted use to be specified. This will allow for possible changes your business may experience at a future time e.g. expanding the goods or services the business engages in providing.
4. Rent Reviews
Landlords generally do not want a fixed rent on a long term lease. They prefer an annual increase in rent based on the percentage increase in the Consumer Price Index (CPI). In these situations, negotiate one that does not commence for two or three years or fix the increases for each increase.
Often modifications must be made to the premises before you move in to make it ready for business. Negotiate who pays for this. Negotiate for access to the premises prior to commencement of the lease to allow the fit-out to occur.
6. Assignment and Subletting
Negotiate the ability to sublease or assign the lease to allow for restructuring or others to occupy the premises.
7. Tenant Improvements
Generally the tenant cannot make any alterations or improvements to the premises without the landlord’s consent. Negotiate that the landlord’s consent will not be unreasonably withheld or delayed.
8. Operating Costs and Common Area Maintenance
Negotiate a fixed-fee or cap on these amounts to limit your costs.
The above information is intended as a general guide only and does not constitute legal advice for all matters of negotiations and contracting into a lease. The success or outcome of those negotiations will depend on a variety of variables which are beyond the scope of this article.
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