Negotiating Leases

Thursday, March 2, 2017

Negotiating Leases

Before signing a lease agreement you have the option of negotiating to reach an agreement that meets your needs. Below are a few of the most important points to consider when negotiating your lease:

Length of your term

One of the most important aspects of a lease is the term of the lease. For businesses, a long-term lease will ensure predictability and a short term lease will allow for more flexibility. Some landlords have maximum terms and options to renew, while other landlords do not. Nevertheless, it must be considered what type of lease term best suits your particular business’ needs.

Commencement date of your lease

Generally, landlords will want the commencement date to start as soon as practicable, so that the rent can commence.

It is important that the commencement date of your lease reflects ‘practical completion’ of the premises in which the landlord’s work has been substantially completed allowing the tenant to lawfully occupy the premises and commence trading.

General factors affecting the commencement date may be if the tenant’s ‘fitout’ has not been completed or where the relevant approvals have not yet been received.

You may wish to delay the commencement until all issues have been finalised and you have received all the relevant approvals to commence trading.

Rent increase

A landlord will generally seek optimum rent from a tenant. It is important that tenants negotiating a lease consider any rent increase clauses which may affect the viability of a business. For example, rent starting at $12,000 per annum with a five percent increase every year will increase to $23,385 per annum after seven years.

Options to renew

A policy some landlords may stick by is not agreeing to any option to renew. It is important to note that landlords are under no obligations to renew a lease and therefore it is important to consider the way in which this may affect your business.

Franchise agreements

When signing a lease under a franchise agreement, it is important to check with your franchisor to determine what assistance and guidance they are able to provide you with. This is because it is crucial to ensure that the terms of the lease agreement reflect the terms of the franchise agreement.

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