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5 things to know about commercial property leases

By Greg Bell

Running a business requires many different skills and is about much more than just selling your wares. Having the right Gold Coast commercial property from which to operate your business can make all the difference in terms of attracting customers, and allows you to focus on growth rather than worry about lease issues or building problems.

To make your property leasing as smooth as possible, make sure you think about the following points before signing an agreement.

1) Length of lease

Depending on your type of business, how established you are, and your plans for the future, you might want a long-term or short-term lease option. A short-term lease allows you flexibility if you need to change your plans, while a long-term agreement gives you stability and an opportunity to build your business over time.

Lease terms are variable in the commercial sector, in the same way as they are in the residential world. Common options include three and five years, and with longer tenancies there are often opportunities for both parties to review the agreement at these points. Under the Commercial Tenancy Agreements Act 1985 (CT Act), a retail shop tenant has a right to a minimum of five years when entering into a lease agreement.

2) Type of tenant and business

Many commercial leases will outline types of acceptable use. Tenants should ensure that they are allowed to operate their business from the premises, and consider any future expansion. Landlords should keep in mind whether their restrictions limit the types of the tenants they can rent to.

Tenants may also appreciate exclusivity clauses, which protect them from direct competition within the same premises, where it is controlled by the same landlord.

3) Rent reviews and negotiations

Rent reviews are conducted periodically as agreed between the landlord and tenant. How rent increases are calculated varies amongst properties and landlords. Common options include using the consumer price index, looking at market rent and agreeing a fixed increase. 

It is also possible to link how much rent you pay to how well your business performs. While this could mean you pay less rent when times are hard, you'll have to provide details of your profit and you could find yourself owing more than you anticipated.

However increases are calculated, make sure to include a best estimation when considering whether you can afford the property in the long term.

4) Costs in addition to rent

As with any property lease, it should be clear who is liable for additional costs. With commercial tenancies, the landlord is often liable for costs related to the premises, such as structural repairs or land costs. The tenant may be liable for expenses relating the inside of the property, particularly with regards to changes to the layout or decor – which may also have to be returned to the state they were in prior to rental no matter the cost. 

However, who pays for what is not set in stone, and it's also important to understand not only which items each party should cover, but how much those expenses are likely to total now and in the future.

Other costs to consider when agreeing to a lease include insurance obligations, legal fees should you choose to enlist an advisory and any bond payments required.

5) Terminating lease agreements

As well as stipulating the notice period required by each party, a commercial lease agreement should also set out any options to end the tenancy early. It's sometimes possible to transfer the lease, or sublet the property, but these often come with certain terms and conditions you must abide by.

For help understanding the kind of commercial lease that works for you and to get your search underway, talk to the team at Ray White Surfers Paradise.

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