Shopping for Shops: What to expect when entering Commercial and Retail Leases

commercial and retail leases

Starting a business in a new area is an exciting prospect – new place, new people, and new opportunities. When shopping for a new shop, ensure you understand the lease you’re entering into.

Entering into a lease is a major financial commitment and usually a necessary overhead expense to run a successful business. But whether or not your business is successful, once you enter into a lease, you have agreed to pay rent for the entire term of the contract. So before considering a shop for your small business make sure you have secure financial backing and viable business plan for ongoing success.

Local Council

Before committing to a lease it is important to ensure with the local council that the shop’s development use is consistent with the type of business you are planning to run. It may not be possible to open a night club or bar for a shop approved only for restaurants.

Lease Terms

At Lazarus Legal we can assist you in understanding and negotiating your obligations under a lease. There may be other potential costs under the lease. It is important to budget for outgoings, repairs and maintenance, and fixture and fittings if they’re required under the lease. Certain outgoings should be directly related to the shop and attributable to the maintenance of the building or shopping centre.

Rent Increases and Bond

During the term of the lease it is likely that the rent will increase every 12 months. It may be calculated by a certain percentage or cost adjusted to inflation. We can assist you with negotiating any rent increases with the landlord before you sign your lease. Bonds or bank guarantees may also be requested by landlords. Understand that a bond is not alternative to paying rent on time. Even with a bond, a landlord may still lockout a tenant keep the bond or guarantee and sue for damages.

Retail Leases

Certain commercial leases like those in shopping centres are governed under the Retail Leases Act 1994 (NSW). Leases governed by this Act have certain specific requirements such as retail leases which require being at least 5 years. There are disclosure obligations that apply which we are able to assist you with.

The End of the Lease

Proper business planning is vital to forecast whether or not the start of the business will allow you to make a profit during the first term of the lease. This is an important thing to take note of because landlords are not required to give a new lease at the end of the first term. Because of this, it will be almost impossible to sell a business without a lease. It’s therefore a smart move to negotiate an option for a new lease.

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