• Rent questions to ask include:
• the average rent in the area you are interested in; and 
• what is available elsewhere for the same rent.
• Rent review questions to ask include what kind of review method the landlord uses. This could be:
• a CPI review;
• a market review; 
• a fixed percentage review; or 
• a combination. 
• Term questions to ask include:
• how long are the lease terms being offered in the area you are looking at; and
• are there any other landlords who are willing to enter leases with an option to renew.
• Incentive questions to ask include whether there are any landlords providing incentives to tenants to enter leases such as:
• offering a contribution to the cost of fitting out the premises; or
• early access arrangements to allow installation of fixtures.  
• Vacancy rate questions to ask include:
• what the current vacancy rate is in the area you are interested in; and 
• whether a particular landlord has a high or low vacancy rate.

• There are many different factors you should consider when deciding if a lease is right for your business. These include the following:
• Whether it is the right location for your business, whether the premises meet your requirements with respect to passers-by and whether the premises will be able to accommodate the growth of your business;
• Your ability to afford the location remembering that rent is only one of the costs that you will be required to pay under a lease;
• Whether there any zoning requirements that could stop you using the space as intended; 
• Whether you need a license or permit to run your business in the location you are looking at;
• Whether the floor plan is practical and functionally suited to your business;
• Whether you need to change anything about the premises in order to meet occupational health and safety regulations such as:
• water pipes;
• electrical wiring; or 
• slippery surfaces;
• The type of customer your business is targeting and the types of customers that frequent the location you are considering;
• Whether there any structural engineering or asbestos checks you should make to ensure the premises are safe for you and any employees to work in;
• Whether the consent of the landlord is required in writing to enable you to do any installation works prior to occupying the premises;
• How long you need the lease to be to recover your costs and make a profit;
• If you are entitled to a minimum lease term under the laws in your state or territory and whether you or the landlord requires a waiver of that minimum term;
• Whether you are able to obtain the lease term you require at the location you are looking at; and
• Any fit out your business will need including:

1. the cost of the fit out;
2. whether the floor space can accommodate the fit out you have in mind; and
3. whether any changes to the premises will require written permission or approval.

• The most important factors to consider include the following.
• The duration of the lease including how much longer it has left if you are taking over an existing lease;
• Whether the lease has an option to renew; 
• The amount of rent and how often it has to be paid; 
• Whether the lease has a right of assignment permitting you to transfer the lease if you decide to sell the business. If it does not you should negotiate such a clause into the lease before you sign it;
• Whether the lease contains a dispute resolution clause;
• Whether the lease allows for your type of business to be conducted;
• Whether the lease will allow you to sub-let floor space if you do not need all of the premises; and
• Responsibility for ongoing costs such as:

1. council rates;
2. water costs;
3. electricity costs; and
4. legal fees.

• An option clause will stipulate the conditions to be met if the tenant wishes to exercise an option to renew the lease. To ensure that the option clause provides the tenant with a valid right to a further lease it is important to read the conditions carefully when negotiating the original lease.
• An example of a condition might be that the tenant did not breach the lease during the previous term. A prospective tenant should consider changing the clause as follows:
• to require only that the tenant is not in breach of the lease at the time when the option is exercised; and 
• that the breach is one that the tenant has been previously notified about in writing. 
• This prevents the landlord claiming that the tenant has breached the lease and only raising it when the tenant tries to exercise the option to renew.

• A costs clause requires a tenant to pay costs incurred by the landlord in relation to a particular issue such as legal costs arising because the tenant requests the landlord’s consent to an assignment (transfer) of a lease.
• These clauses should be negotiated and amended if necessary to provide that:
• such costs are limited to reasonable costs only; and 
• costs must be evidenced by the landlord before the tenant is required to pay them. 

• Indemnity clauses seek to protect the parties from any liability that falls outside their control.
• A landlord might seek indemnity from any legal action arising out of a customer being injured due to the tenant’s negligence in the tenant’s shop. 
• Any indemnity provided by the tenant should exclude liability occasioned by the act or negligence of the landlord including:
• damage;
• loss, 
• injury; or 
• death.

• A breach clause allows the landlord to terminate the lease if the tenant breaches its terms and conditions. 
• It is important to review and negotiate the breach notice requirements. 
• Such clauses should be negotiated to require the landlord to first notify the tenant of the breach and require them to fix it within a specific time such as a 14-day period. 

• A rent review clause stipulates how the rent will be reviewed at the beginning of an option term or at regular intervals such as an annual rent review.
• The rent can be determined by:
• CPI (Consumer Price Index) review;
• market review; 
• fixed percentage review; or 
• a combination of the above. 
• The clause will also specify when the landlord must notify the tenant of the new rent. 

• Your main objective will most obviously be to develop a profitable business but other key objectives when entering into a retail or commercial lease might include:

1. finding premises that will allow for expansion and growth if desired;
2. ensuring the lease can easily be transferred or assigned to another person; and
3. ensuring the premises are suitable to your business needs for the life of the lease including allowing your business to generate the requisite income.

• The location of your business can be an important factor in its success. When choosing a location carefully assess what environment is appropriate for your business and consider whether your business can benefit from the location. For example a location may be ideal for your business because:

1. your suppliers or distributors are located nearby;
2. it is a known centre for consumers of the products or services your business provides; 
3. many of the people who work or live in the area are the target consumers of your business;
4. other businesses in the area complement yours; and 
5. it is a developing area in which commercial opportunities may present themselves in the near future.

• Consider contacting the local council to gather information about the socio-economic characteristics of the location you are interested in. Research the market for leases in the location you are looking at.
• Research the property and compare it with other premises before making a commitment. Ask a local real estate agent about their observations of businesses in the area in comparison with other areas. Talk to current tenants in the area you are looking at as well as the current tenants of your prospective landlord.
• Identify the shop features a business like yours should have and then look for a property best suited to those needs. Talk with other people in the same business as you and inspect premises where similar businesses are located. Be aware that you take premises as you find them so it is up to you to ensure they are fit for the purpose you intend or clarify with the landlord what types of fit-out will be acceptable.
• Enquire about the rental market in the area and the difference between buildings or shopping centres including locations within a shopping centre. 
• Premises with street or mall frontage have a lot of passing pedestrians and will likely come at a higher rent than premises around a corner. If the premises do not have high foot traffic consider whether you will need to negotiate advertising rights into the lease agreement.
• Market research is a continuing job throughout the lease. It can assist when entering lease negotiations as well as negotiating a new lease or rent review with a landlord. 
• When considering what your business can afford, remember to include ‘outgoings' such as costs for services like electricity, water, telephone, cleaning costs, day to day repairs, maintenance and advertising signage.
• Look at other businesses in the shopping centre or precinct and consider whether they will complement or compete with your business.

• Leases should be tailored by negotiation to suit the requirements of your business.
• It is important to identify your leasing requirements before you negotiate a lease. Identify your leasing requirements as follows:

1. things that you must have and cannot do without; 
2. important things that will affect your overall business;
3. things that do not really affect your business and on which you are willing to compromise; and 

• things that do not affect your business at all.
• Do not feel obliged to accept the first offer put by a prospective landlord. 
• Everything in the lease is negotiable. Usually the lease document has been prepared by the landlord’s lawyer and you can expect that the conditions it contains are those that are acceptable and favourable to the landlord. The extent to which these conditions can be negotiated will depend on a number of issues including: 

1. the degree of competition between potential tenants who may be interested in the premises you are looking at;
2. the landlord’s financial situation;
3. the benefits to be gained by the landlord’s agent;
4. the intention of the landlord about the future of the building where the premises are located; and
5. your own knowledge and ability to negotiate if you are not represented by a lawyer.

• The lease agreement should contain information about the premises to be leased such as: 

1. a description of the area of the space to be leased including a floor plan;
2. the proposed rights, obligations and liabilities of both you and your landlord;
3. conditions that apply to the use of the premises including:

• rent;
• other costs;
• length of the lease;
• the condition of the premises upon vacation; and 
• any other issues regarding the leased area. 

• The terms of the lease should provide your business with:

1. security of occupancy;
2. no restrictions on the day-to-day running of your business;
3. no unexpected or additional financial expenses;
4. protection from competitors to your business within the same shopping centre or group of shops; and
5. the ability to conduct a profitable business.

• Some of the main issues that will need to be negotiated therefore include: 

1. the term of the lease; 
2. the amount and frequency of the rent; 
3. full details of the contribution you must make to the property’s outgoings; 
4. permitted uses of the property; 
5. the option to renew the lease (if applicable); and 
6. the bond or bank guarantee required (if applicable). 

• Your permitted uses of the premises may be limited by the lease agreement. If you need to undertake certain activities on the premises you should ensure those requirements are permitted by the landlord and specified in the lease. 
• If you fail to negotiate the right do something on the premises and it is not set out in the lease. you will need to obtain your landlord’s permission. Examples include:

1. putting up advertising signs;
2. installing additional shelves or partitions;
3. the use of any common areas such as the space directly outside and in front of your store;
4. the use of toilet facilities;
5. car parking for staff and customers; and
6. access points to your business.

• Ensure that the permitted use clause allows for the potential growth of your business. If you are running a restaurant the permitted use of your premises may not allow your business to include certain dishes in your menu.
• Consider protecting your business with an ‘exclusivity of trade’ clause in your lease. This would prohibit the landlord leasing to your competitors and give you the sole right to conduct a type of business or sell particular products in premises owned by the landlord.
• Negotiation involves going back and forth a number of times before finally agreeing on how the words of a clause should be drafted. A proposed lease document will be in ‘draft form’ until it is executed (signed by both parties).
• All agreements made during negotiations should be confirmed in writing. This includes:

1. amendments;
2. verbal statements;
3. representations; and
4. promises.

• If the landlord or their agent agrees to something and they do not put it on paper you should write to them setting out your understanding of what was said and ask them to confirm your understanding in writing.
• For example you should get it in writing if the landlord verbally tells you they will allow you to add a particular product to the range of goods normally sold in your shop that is also being sold by another shop in the building.
• We can assist you in identifying the kinds of amendment you should consider asking for as well as the types of amendment that are likely to be agreed to. If any of the landlord’s conditions in the proposed lease are unacceptable to you and the landlord is not open to negotiation on them be prepared to walk away before signing.
• Once negotiations have been completed it is strongly advised that the parties do not prepare the lease documentation themselves. We will ensure the lease document is drafted in accordance with all of the issues agreed to during negotiations.
• When negotiations have finished and you have the final draft of the lease agreement step back and take another long, hard look at the whole project (not just the lease). 

1. If you feel confident everything has been done properly and you have a viable business proposition consider going ahead with it and signing. 
2. If you are at all unsure or uneasy about any aspect of the proposed lease even after negotiations it may be sensible for you to walk away. 
3. Remember your livelihood and lifestyle are at stake and risks to them should only be taken if they have been properly considered and all implications are fully understood.

• If the landlord is difficult to negotiate with this may indicate any future business relationship you share with them will be a difficult one which may cost you dearly. Listen to any ‘alarm bells’ in your mind. 
• If the landlord’s conduct during negotiations has concerned you in any way talk to before signing the lease.

Question

I am starting a new business and have chosen retail premises in a suitable location in a busy shopping centre. There is a clause that says the landlord can offer leases or licences to existing tenants to start a business that will compete with mine. Should I go ahead with it anyway?

Answer

• The conditions of a good lease should ideally provide security of tenure and affordable rent for the full term of the lease and not interfere with the day-to-day running or impose additional financial burdens on your business.
• Protection from competition is especially important if the business is located in a shopping centre or a cluster of shops owned by the same landlord.
• If the lease you are considering permits the landlord to offer leases or licences to existing tenants to start a business that will compete with yours then the possible effect on your profits must be taken into consideration.
• Where such a clause exists and the landlord is unwilling to either remove it or agree to compensate you for any loss of income caused through the introduction of a competing business the potential for financial loss and inability to sell the business should not be underestimated. In these circumstances it may be advisable to look elsewhere.

Question

I have a retail lease in a small building in a strip of shops. I have heard the landlord is considering selling the building. Where do I stand?

Answer

• Depending on the terms of your lease the landlord’s rights and responsibilities under the lease are usually transferred to the new owner if the building is sold. 
• You can protect your rights if new owners know about your lease before purchasing. Leases can be registered with the Land Registry Service in NSW. This will give any new owner full notice of your lease.

Question

I have shop in a small shopping centre. The landlord has spoken to me about new tenants coming in however he says they won’t be competing with me. Can I protect my business?

Answer

• Landlords are not obliged to tell tenants about proposed tenancy mix changes or protect them from competition in most states and territories. 
• If verbal assurances have been made about the new tenants not competing with you make sure the assurances are confirmed in writing and included in your lease agreement. 

Question

I have a retail lease in a busy shopping centre and rely heavily on foot traffic. The landlord has commenced refurbishment of the area directly outside my shop. It is noisy and partly blocked off which means we don’t get the foot traffic we used to and sales have suffered. What can I do?

Answer

• Tenants are usually entitled to quiet possession of premises and to be free from disruptions such as:

1. shopping centre refurbishments;
2. special displays on common property directly in front of your store; or 
3. placing new temporary installations that get in your way.

• The retail lease legislation in your state or territory may give you additional rights to deal with a landlord interrupting your business. 
• The problem may be resolved if you both understand the lease agreement and speak to each other about issues when they arise. This may help to resolve the dispute before it becomes an even bigger problem and save you time and money. 
• Laws in each state and territory have procedures to help resolve retail tenancy disputes. These services are intended to save costs and provide a reasonably quick resolution of the dispute.
• You should try to negotiate some form of compensation with your landlord such as extra advertising or a reduction in rent during the refurbishment period.

Question

I want to mortgage my lease to allow me to have further capital to reinvest and energise the business. Is this allowed?

Answer

• You may be able to mortgage your lease unless your lease agreement expressly prevents you from doing so. 
• Lease agreements will usually require that you ask your landlord for permission.

Question

I’m having some cash flow problems and have been advised to either sell the business or at least sub-let space we are not using. Can I do this?

Answer

• Leases generally require you to obtain your landlord’s consent if you want to assign (transfer) or sublet the premises. 
• Your lease agreement or the laws in your state or territory will set out any steps you and the landlord must follow after the sale of your business including your liability for future obligations.
• It is very important that you seek further legal advice before doing anything so you clearly understand your rights and obligations under your particular lease.

Question

My sales have slumped and I’m concerned we may not make the next rent payment when it’s due. What will happen if we are in default?

Answer

• Breaches such as not operating your business within the hours specified under the lease or undertaking works without your landlord’s consent are capable of being fixed. Non-payment of rent or outgoings in accordance with the lease is generally treated more seriously than other types of breaches.
• Read your lease to see if it sets out any procedure to be followed in the event that you default. 
• You should seek legal further advice to clarify and confirm what your lease says about defaults particularly if your landlord can issue you with a breach notice. A single default can still have consequences years later. 
• If you are having financial difficulties try speaking to your landlord first before you default to negotiate an alternative payment arrangement.

Question

Our commercial lease is up for renewal and I’m concerned that the rent will go up in accordance with the rent renewal clause. I’m not sure my business can cope with any more financial burdens. What are my rights?

Answer

• Read the clauses in your lease dealing with the timing and method of rent increases. Always budget for rent increases.
• If you consider a rent increase will place financial strain on your business you must be prepared to present solid and convincing arguments against it.
• If you are a good tenant your landlord may consider that retaining you as a reliable tenant is more important than increasing the rent.
• You should seek legal further advice if a dispute arises.