What terms can you expect in a retail tenancy agreement?

Entering into a retail tenancy agreement will involve a lot of fine print, so it’s important that you fully understand what you’re getting yourself into. This means carefully reviewing all the terms and conditions included in this type of commercial lease.

While many smaller operations might use a cookie-cutter lease that can be found online, most retail tenancy agreements will be tailored to meet the needs of the parties involved. However, the vast majority of leases will have these common terms and conditions:

Lease duration and renewal options

The duration of the lease determines how long it will be in affect. This length depends greatly on the occupant’s business track record as well as the time it takes to recoup the initial investment and turn a profit.

Once the lease is up, landowners do not need to renew the lease. However, an option may allow the tenant the possibility of renewing that lease if they wish to.

Rent and rent review

The amount and frequency of rent payments also falls under the terms and conditions. Both parties will typically negotiate on these numbers and dates, however they can sometimes be set in stone.
Typically, once a year, a rent review will take place, where new terms may be agreed upon. Common types of rent review will base the terms on either the consumer price index (CPI), fixed percentage increase, fixed amount, or local market rent.

Permitted use

Most retail leases will include a “permitted use” clause that lays out what business activities the tenant can and cannot use the premises for. Restrictions in this clause can potentially be a hindrance to growth for some tenants, but they provide landlords with greater control of the land usage.

Other costs

A retail tenancy agreement might include clauses with other costs included, such as:

• Operating costs and overhead.
• Repair and maintenance.
• Insurance.
• Security bond.

These costs are usually above and beyond the typical rent payments.

Termination

Nearly all retail tenancy agreements will have some sort of end point, where the tenant is no longer allowed to occupy the space. In some instances, the lease may have a termination clause that lets the landowner terminate the agreement earlier than the ending point.

These are just a handful of the many different types of terms and conditions that populate retail tenancy agreements. It’s important that all aspects are reviewed and negotiated to protect your best interests. Working with an experienced commercial real estate group can help ensure the terms and conditions on your next retail tenancy agreement benefit you.

Contact Ray White today for assistance with your next tenant agreement.