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Leasing commercial premises

Leasing commercial premises

LEASING COMMERCIAL PREMISES – here are some pointers:

Point 1
This is a business transaction. No more and no less. Take your time, understand the process and get to learn as much as possible about the language, the parties involved and the commercial real estate environment whether you are a lessee or a landlord.

Point 2
Most if not all leases are based on the “ratchet review”, i.e. the mechanism whereby the reviewed rental cannot be less than the previous year’s rental, consequently it only goes up. Do not agree to it.

Point 3
When leasing commercial premises, ensure the terms of the lease favour both parties to the deal, after all it is a partnership of 3, 5 or 10 years. Your lease should incorporate the “Cap and Collar” review. It is a mechanism that caps the maximum amount by which the rent can be increased, or a ‘collar”, the maximum the rent can decrease, on the nominated market review date.

Point 4
The “Make Good” is one of the weakest points suffered by DIY lessees when leasing commercial premises. It is the mechanism by which the lessor ensures the lessee reinstates the property back to a pre-specified state, once the lease period is expired.

Unless it is agreed between the lessor and lessee, the reinstatement involves but is not limited to the removal of the lessee’s fitout, mechanical and electrical work, replacement of ceiling tiles, paint of surfaces and removal of redundant cables.

If you are to agree to this clause, ensure you know all of the details, requesting a “make good scope” from the landlord to identify the exact liabilities you will be up for. Do so BEFORE you sign the lease.

Point 5
Get your accountant, lawyer, business partner or your 2ic to go through the proposed lease. Seek their input “as they see it”.

Point 6
Outgoings when leasing commercial premises. What you agree to at the commencement of the lessee is not necessarily what you end up paying every month. It is all about the wording of this clause in the lease. Be cautious.

Point 7
Finalising the lease of your new premises takes time. Depending on the type, size and location, it can take anywhere from 6 months to 18 months from the day you inspect the first property to the day you locate into your new premises. Be wary of time running out and start early.

Point 8
Do not forget to recognise when leasing commercial premises the dates when you must notify your landlord of your decision to vacate or exercise the option to renew the lease. Normally, the lease has two dates: the earliest and the latest your notification can be served.