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5 must-know facts before you start a commercial lease

By Greg Bell

You're ready to make your start-up dreams a reality – you have a business plan, partners and the necessary capital to get things up and running. There's only one thing missing: a premises.

When you're looking to move into your first commercial property you have two options: buy or lease. In this article, we'll be addressing why leasing may be the better option for you and outlining five basic facts to help you feel ready to start your first commercial lease.

Why should I lease my first commercial property?

In the start-up phase of your business, or even when you're chasing growth opportunities, there are certain risks associated with buying property that mean a commercial lease is the superior option.

Here are some of the reasons your should consider a lease:

  • You don't need to invest a large amount of capital upfront.
  • Maintenance and repairs are your landlord or property manager's responsibility.
  • Likewise, regulatory compliance is handled by your landlord or property manager.
  • There's no property investment risk.
  • Relocating, whether to expand, shrink or adapt, is much easier and faster.

Before your company has its bearings, mitigate the risk of a hefty investment in commercial property by selecting one of the many incredible rental opportunities available in the Gold Coast.

Leasing commercial property can come with a fair bit of confusion for newcomers, however. Terms for this kind of lease do differ from the residential agreements you may be familiar with. 

1. Commercial leases tend to have longer terms

While residential leases are often offered for a fixed one-year term, most landlords will prefer long-term agreements. With a new business, it might be a good idea to negotiate a shorter term and look for an "option clause" in the agreement. This clause provides an opportunity to renew your lease for an additional term, offering income security to the landlord and location stability for you.

2. Annual rent increases are normal

Most commercial leases include an escalation clause which states that rent will increase on each anniversary of the lease. This increase may be a fixed percentage value, or be annually reviewed to reflect the Consumer Price Index. Rent increases can't occur more than once a year and you must be adequately informed before each increase. When considering a lease, be sure to assess how the escalation clause compares to your projected cash flow growth to ensure rent won't climb out of your price range.

3. Fit-out and making good are your responsibility

For many spaces, particularly in retail property, internal fixtures and fittings are required for operations. This is called fit-out and is done at the expense of the tenant, although a landlord may offer it as an incentive to close a deal. Be sure to incorporate fit-out costs into your budget.

At the end of a lease, you'll also be responsible for "making good". This means you're required to return the property to its original state, removing all additions, fixtures and fittings and repairing damage. That said, common wear and tear is generally excused.

4. You can only use your commercial property as stated in the lease

Permitted use of the commercial property will be outline in your lease agreement. This explains the specific purposes that the property may be used for, be that retail trading, warehousing and distribution, cafe space or otherwise. When negotiating your lease, consider not only your current business operations but also any intentions you have to grow or diversify your offerings. It's also possible for this clause to stop you from assigning the lease to another person should you try to sell your business, so it's in your best interest for permitted use to be broad.

5. A professional real estate agent is your best friend

There are more nuances to commercial leasing than can be easily explained. The best way to approach the acquisition of your first premises is to talk to a professional commercial real estate agent. The team at Ray White Commercial Gold Coast are standing by, ready to help see your dreams become reality. Contact us today!

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