Commercial Lease

17 November, 2016

One of the most important aspects when running a business is to consider the premises from which the business is run.  Despite the rise of e-commerce businesses in the modern economy, thousands of businesses across the country are run within bricks-and-mortar premises.  This is why it is important that the proprietor of the business ensures that they have a Lease in place to protect the interests of their business with respect to its location.

Should the proprietor of the business not be the owner of the shop from which the business operates, the proprietor must be in a position to negotiate a Commercial Leasing Agreement with the Landlord of that premises.  The standard Commercial Lease Agreements which are used on a daily basis can be quite voluminous and complex due to the fact that they must protect both the interests of the Landlord and also the Tenant for the duration of time that the Lease is in effect.  A Commercial Lease Agreement needs to be forward looking in respect to attempting to mitigate any potential issues or conflicts of interest which may come about at some time in the future as the term of the Lease winds down.

Whilst some people choose to enter into a License Agreement, Tenants should be aware that this does not grant exclusive possession of the property to the Tenant in the same way that a Lease Agreement does.  The Lease grants the Tenant exclusive use of the property for the period of the Lease and, in exchange, the Landlord receives rent from the Tenant.  Any Commercial Lease which has a duration of longer than three years should also be registered on the Title of the land in question so as to protect the Tenants in the case, for example, where the Landlord chooses to sell the property to another party.  The registration of the Lease on title thereby protects the Tenant’s interest and their exclusive possession of the premises.

Some of the most prominent features of a Lease may be the following:

Rent:The payment of rent is an essential element of any Commercial Lease.  As stated above, the Landlord accepts the Tenant’s right to exclusive use of the property in exchange for the payment of rent and the Commercial Lease Agreement will usually contain an express clause which gives the Landlord the right to terminate the Lease and take possession of the property should the Tenant fall in arrears of those rent payments.

 

Bonds:As with most Lease Agreements, Commercial Lease Agreements usually contain a Bond Agreement.  It should be noted that there are no legislative requirements in respect to the Lease Agreement containing such provisions. The terms of the Bond Agreement, such as the amount and the withholding and repayment of the bond are to be decided between the two parties.  It is important to specify the terms upon which the termination or expiry of the Lease effects the bond funds being returned to the Tenant.

 

Outgoings:This is another quite common condition contained in Lease Agreements. The provision will usually outline those outgoings which the Tenant is liable for such as, water rates, land tax, management fees, and other taxes in relation to the premises.

 

Terms:The duration of the Commercial Lease Agreement, and any option periods of extension which may be contained in that agreement, are obviously quite an important consideration with respect to the conducting of the business from those premises.  It is important to negotiate prior to the commencement of the Lease what the term of that Lease will be and whether there will be any options to renew the Lease into the future.

 

Fixtures:One of the most costly exercises in relation to a Tenant entering into a Commercial Lease Agreement is the cost of installing shop fixtures and fittings. Furthermore, upon the expiry of the Lease it is usually the responsibility of the Tenant that they remove the fit out and restore the shop to the condition it was in prior to the commencement of the Lease.  Another important consideration with respect to such clauses is the inventory of the fixtures contained in the premises prior to the commencement of the Lease and the Tenant’s right to install further fixtures or remove existing ones.

 

Maintenance:It is the usual provision of a Commercial Lease Agreement that the responsibility for the maintenance of the premises are split between the two parties.  Commonly, it is the responsibility of the Tenant to undertake general repairs and maintenance, while it is usually the responsibility of the Landlord to repair any structural defects to the premises.  As some maintenance issues may be quite expensive it is important that the parties negotiate the terms of these clauses prior to the commencement of the Lease.

 

Refurbishment:While some Leases may require the Tenants to refurbish the premises at regular intervals, and this may in fact be beneficial the Tenant’s business, it must be appreciated that this could be quite costly and expensive. It is therefore imperative that the refurbishment provisions in the Commercial Leasing Agreement clearly specify the terms and the schedule of any refurbishments required by the Landlord.

 

Although Commercial Lease Agreements may be quite complex and extensive, they are certainly an important part of running your business.  You need not feel overwhelmed by the process of negotiation and structuring these agreements as the friendly, professional and experienced staff at Access Law Group can assist you by providing the right advice and remove the stress associated in this process and leave you to concentrate on the much more important task of running your business successfully.