In general, a Commercial Lease refers to an agreement between a landlord and a tenant to rent a commercial property. This may be for the use of an office, retail space, car park, or industrial premises like a factory, a warehouse or shop for a certain period of time and for an agreed monthly rental payment.
Each individual lease will set out the rights and obligations of the owner of a commercial property (landlord or lessor) and a second party that has agreed to occupy the property (tenant or lessee).
All Commercial Leases are governed by property laws, which are similar all over Australia. However a Commercial Lease often contains special conditions and the requirements of the lease can vary considerably based on the eventual use of the rented space.
Conditions in a Commercial Lease may pertain to a wide range of different areas and will vary from lease to lease, common conditions may stipulate the type of business that may be allowed in the premises, safety requirements, operating times, and parking arrangements to name a few.
What is included in a Commercial Lease Agreement?
The following conditions must be recorded in commercial lease agreement:
- The terms of the lease (start and duration of the lease).
- Rent amount and frequency of payment (monthly, quarterly, or annual).
- Rent review, including how and when this is done.
- Lease renewal options.
- Permitted and prohibited uses of the premises.
- Which party covers any property expenses
- Insurance requirements.
- End of lease obligations (like repairs, replacements, renovations).
- Security deposit amount and method of payment.
In addition, the lease agreement may include an indemnity clause. This clause indemnifies the landlord from any civil claims that may arise from persons entering the premises, such a personal liability claims.
What expenses does the tenant in a Commercial Lease normally cover?
The tenant is normally responsible for the following:
- Fit-out of the premises. The tenant normally pays the cost of any fit-out, as this is particular to and a requirement of the tenant’s own business.
In addition, at the end of the lease, the tenant will normally have to remove the fit-out and return the premises to the condition as it was before the lease began.
- Security deposit or bank guarantee. In addition to rent, the landlord generally seeks security from the tenant to protect the landlord against default for non-payment of rent or non-performance by the tenant of its obligations under the lease.
It is common for the security to be an amount equal to 3 to 6 months rent by way of bank guarantee (if the tenant is an individual) or personal guarantee (if the tenant is a company). If the bond is in form of a sum of money, then the lease should set out conditions regarding the use, withholding and repayment of the bond.
- Public liability insurance and other types of insurance. A lease often requires the tenant to take out and maintain insurance in relation to the building, contents, together with public liability and other potential insurance types depending on the tenant’s business. These insurances are generally available in a business insurance pack.
- Repairs and maintenance to the premises during the lease term. Generally, the tenant will be responsible for the repair and maintenance costs to the property in commercial leases. However, this does not normally include structural issues and capital items like air conditioning system, walls and the landlord’s plant and equipment, which should be the responsibility of the landlord.
Why seek legal help?
Generally, the obligations of a commercial tenant greatly differ from those of a residential tenant, and it is highly beneficial to have a solicitor manage a Commercial Lease to ensure that your rights are protected and that your needs will be catered for in the lease.
McNamara & Associates can assist you with creating, ending or amending a commercial lease, and any disputes that may arise as a result.