1. Leasing issues to consider
A major consideration of many new businesses starting out is to secure premises from which
to operate the business.
A large number of businesses in Australia operate from leased premises, whether they are
commercial, industrial or retail.
Leasing of business premises is far more common, particularly commercial offices and retail
The advantages of leasing of premises, include:
In basic terms, a lease is a right granted by the owner (landlord/lessor) to the occupant (the
tenant/lessee) to use the land or building in return for regular payment (rent).
A lease constitutes an interest in land, which can be registered on the title of the land in
When signing a lease, it is important that you make the effort to negotiate a fair lease before
taking occupation of the leased premises.
Too often tenants concentrate on the most obvious lease terms – such as the commencing
rent; rental increases and option terms – but disputes often arise between landlords and
tenants regarding provisions in the lease which are generally not focused on during
Here are some examples:
2. Permitted Use – make sure the permitted use under the lease is compatible with the
zoning of the land. The misconception is that "permitted use" means "use permitted
by both the landlord and the local authority".
3. Market Rent Review – many landlords will offer incentives to tenants to enter into a
When negotiating it is important to understand the difference between the
terms "face rent" - the rent figure written in the lease document and the term
"effective rent" - the rent figure arrived at after reducing the face rent to take
account of the value of any incentive provided to the tenant.
4. Make Good/Reinstatement Obligations – often at the end of the lease term, disputes
arise in relation to the extent of the tenant's reinstatement obligations.
5. Directors Guarantees - where directors guarantees are given for the obligations of
the tenant under a lease, the landlord will usually require the guarantors to "stay on
the hook" on the assignment of the lease so that a guarantor is liable for the assignee's
obligations under the lease.
only form of security required under the lease.
6. Encumbering the Lease – often a tenant agrees to enter into a lease which prohibits
the tenant from encumbering the lease.
in favour of a financier, the tenant is placed in immediate default of the
restrictive provision prior to the lease being entered into so that the
grant of security to its financiers is not prohibited.
7. Relocation and Demolition Clause – If your lease is in a shopping centre, your lease
may contain what are commonly known as relocation and demolition clauses. These
clauses give the landlord the right to either relocate you to another premise within the
centre (relocation), or terminate your lease if they are going to redevelop the centre
(demolition). These types of clause may have a significant impact on your business
and the fitout installed in the premises. It is best to negotiate with the landlord to have
such clauses removed from the lease. However, in essentially all shopping centre
leases, landlords will resist such requests, and in such circumstances, you should then
try to water down the operation of the clause so that the risk to your business is
minimised. Sections 34 and 35 of the Retail Lease Act 1994 (NSW) provide some
protection to the tenant (ie the business owners operating from those premises) from
the consequences of relocation and demolition, whereby a landlord must comply with
strict notice requirements and responsibility for compensation.
In addition to the above, tenants should consider the possibility of seeking rent free incentives
and landlord contribution towards fitout. It is important that tenants/business owners
negotiating a new lease obtain professional advice and speak to their lawyer before agreeing
to and/or signing any lease offer with the landlord.
Rostom Manookian | Legal Practice Director
DC STRATEGY LAWYERS