Commercial lease clauses are important. As they say, “read the fine print!” Just like any other contract, a commercial lease has clauses that will outline the terms of agreement between the parties.
Reading these clauses and understanding them is crucial because they will define the rights, responsibilities and financial obligations throughout the lease term. A well-understood proposed lease will protect your business from unexpected costs, restrictions, and potential disputes with the landlord.
This article has three objectives:
- Firstly, to give you financial clarity so you can budget and avoid surprises.
- Secondly, to tell you what you can and can’t do with the property, what modifications you can make, and how you can run your business.
- Thirdly, to help you negotiate better when you lease commercial property or for retail lease matters.
Examples of Commercial Lease Clauses
Make sure your commercial lease is good for your business in NSW by reading and understanding every clause in the agreement. You should get a lawyer to make sure your rights are protected and the lease terms are clear and enforceable.
Basic Commercial Lease Clauses
Here are some commercial lease clauses to watch out for in buildings and shopping centres:
- Rent and Payment.
Knowing the rent amount and payment schedule helps with budgeting and ensures timely payments to avoid late fees or potential lease termination. If you know how long the lease is, you can plan for the future of your business. And if your lease has renewal options, you can stay on the site even if your business grows.
- Use of Premises.
This section specifies the authorised uses of the precinct or shopping centre. It could mandate particular licences or permits for particular applications, or it could limit particular activities (like food preparation or manufacturing, for example).
To keep your company activities in line with the lease and out of trouble with the landlord or legislation, it’s important to remember the allowed uses of the premises.
- Maintenance and Repairs.
Who is responsible for keeping the property in good condition? Common areas and structural elements are usually the landlord’s responsibility, while interior repairs and minor maintenance are the tenant’s responsibility.
Knowing these categories will help prevent disputes over who should pay to fix things and protect you from paying for repairs that aren’t your fault.
Are There Other Commercial Lease Clauses to Watch Out For?
1. Assignment and Subletting
This clause will outline the circumstances under which an incoming tenant can sublease the space to someone else or assign the whole lease (including the right to transfer duties and responsibilities).
These may be subject to landlord approval or have specific procedures. If you want to get out of your lease early, with or without the landlord’s approval, read these clauses carefully.
2. Default and Termination.
This clause will outline the circumstances for termination of the lease by both parties. Examples of lease breaches are not paying rent (a tenant defaults on their obligations) or using the premises without permission. It will also outline the consequences for each breach, e.g. cure period or termination notice.
If you know the reasons for termination, you can protect your lease and know what to do if your landlord tries to terminate it without grounds.
3. Security Deposits.
For reasons such as overdue rent or unresolved property damage etc., this clause will outline when the landlord can withhold the deposit in full or in part.
To avoid the landlord taking your security deposit unfairly when the lease ends, read and understand these conditions. You should also make sure the property is documented when you take possession of it to avoid disputes over deductions,
Besides the above, commercial leases may also have other clauses depending on the property and negotiation. These may include:
- Signage restrictions on the outside of the property.
- Access for deliveries, after-hours work, or disabled access.
- Insurance requirements for the tenant’s business and property.
- Dispute resolution process if landlord and tenant disagree.
- Any other disclosure statement
Office of the NSW Small Business Commissioner
If you’re setting up a small business and leasing a commercial space in NSW, make sure you check with the Office of the NSW Small Business Commissioner (OSBC) first. They can help you prepare for your business and protect you as a tenant.
OSBC is the voice for small businesses, advocating for policies and regulations that make it easier to operate. They also offer low-cost mediation services to help small businesses resolve disputes with other businesses or government agencies.
OSBC also has a range of resources and strategic advice for small businesses on topics such as starting and running a business, navigating the regulations, and resolving common issues.
Check out OSBC’s website for more on commercial leases.
Get JB Solicitors To Review Your Legal Documents
Not sure about the terms in your commercial lease or want to negotiate it? Talk to one of our lawyers at JB Solicitors. We will review complex commercial, real estate, and retail leases and explain each clause in plain English.
We can also negotiate on behalf of the tenant and try to get more favourable terms such as lower rent, longer lease, or permission for desired changes to the property.
A review may seem like an extra task but it will save you in the long run by:
- Not signing a lease with bad terms that have potential legal costs in the future.
- Identifying potential issues and fixing them before they become disputes with commercial landlords.
- Ensuring the lease is compliant with the regulations and protects you from legal penalties.
