A commercial lease contract is a major undertaking for all business owners in Perth and Western Australia. This contract can have huge implications for your business in terms of flexibility, costs and how you run your business operations. You must know what you are signing up to.
To help you with that, this blog presents some of the main clauses of a commercial leasing agreement and how a commercial leasing lawyer can assist you in going through these documents.
An Overview of the Commercial Lease in Western Australia
In Western Australia, commercial leases usually deal with agreements regarding buildings that do not serve as residential areas, including warehouses, industries, shops, and other buildings that may have mixed uses. Commonly, commercial leases are regulated by the Property Law Act 1969 and the Commercial Tenancy (Retail Shops)
Agreements Act 1985 (WA) (CT Act).
CT Act applies to buildings whose floor space does not exceed 1,000 m² and that are:
- In a retail shopping centre (5+ retail premises).
- Not in a retail shopping centre, but used (or predominantly used) for the retail sale of goods.
- Used for specified businesses such as dry cleaning, hairdressing, beauty care and shoe repair.
Key Clauses to Review Carefully
The commercial leasing agreement includes several provisions that influence business financial health and operational freedom. The following are some of the primary clauses connected with Commercial Leasing Agreements:
1. Lease Duration and Options to Renew
Make sure that the initial lease term matches your business plan. Negotiate options to renew the lease so that you can stay longer once the business gets established in the location. Under the CT Act, many retail tenants automatically get a minimum of five years of total term if the lease does not already provide it. In addition, the lease must clearly explain how and when you must tell the landlord you want to renew. It usually stays between 3 and 6 months prior to the lease ending.
2. Rent, Rent Reviews, and Outgoings
Negotiate your starting rent in advance and also discuss how the rent will increase in the future. Some of the common ways to review rent include consumer price index (CPI) increase, a fixed percentage each year, a set dollar amount or a market review.
Outgoings are further expenses you have to bear (apart from the rent) as part of the running of the lease. These could include Council rates, building insurance and repairs and maintenance. In retail leases, under the CT Act, landlords are obliged to include a clear list of outgoings in the disclosure statement before signing. You should try to negotiate a limit to how much outgoings can increase and always retain the right to examine and verify invoices. In addition, the land tax is typically not passed on to tenants in CT Act leases.
3. Fit-Out, Condition, and Make-Good Obligations
Clearly agree on who pays for the initial fit-out (the shop setup) and which items you are allowed to take with you when the lease ends. On the day you take over the premises, prepare a detailed condition report with plenty of photos. This record helps prevent disagreements later.
Make-good clauses set out what you must do to the property before you leave. They often require you to return the space to a basic “base building” standard or to the condition agreed when you fitted it out. Negotiate simple, fair obligations and confirm who owns any fixtures you install.
4. Permitted Use, Exclusivity, and Mix of Tenants
This provision outlines the kind of business activity you are permitted to conduct on the premises. Be sure to create this provision broadly enough to include your present business activities and any reasonable extensions with the help of business settlement lawyers. A restrictive permitted use provision could hinder future expansion or transfer of tenancy. You should negotiate for a broadened definition of your permitted use.
5. Repairs and Maintenance
Negotiate for a good balance of repairs and maintenance by recognising that usually the landlord takes care of the major structures, i.e., the walls, the roof, and other major building systems. While the tenant is responsible for all routine maintenance within the store.
Conclusion
Proper preparation will lead to favourable outcomes while entering into a commercial lease contract. Be sure to know what the critical components of the lease contract mean. Ensure you use the provisions of the CT Act wherever necessary. You can also consult corporate & commercial lawyers in Perth for guidance. This will help you achieve favourable conditions through negotiations.