LawTalk Blog

Stop and look before you lease commercial premises

leasing commercial properties

A lease is a legally binding contract and enforceable by law.

You and your landlord have clearly defined rights and responsibilities under lease agreements.

Never sign a lease unless you completely understand and agree with all the clauses.

Make sure you get good financial and legal advice before you sign anything.

Make sure that you have all the necessary information and have done all necessary searches before you sign a lease.

What is a lease?

A lease is a legally binding contract between you and a landlord. It allows you to occupy a shop or 'premises' (these terms can be used interchangeably). It is important for you to understand what it allows you to do, what it requires you to do and for how long.

The lease usually tells you about:

  • the area of the shop or premises - by describing it (you should be provided with or obtain a plan showing the space);
  • your rights;
  • your obligations and liabilities;
  • your landlord's rights;
  • your landlord's obligations and liabilities;
  • conditions which apply to your use of the shop or premises, like:
  • the rent;
  • other costs that you must pay;
  • how long you can stay;
  • in what condition you must leave the shop or premises when you vacate; and
  • what else you can expect about the shop or premises.

When does a lease start?

In most cases a lease will start when a lease document is signed by the landlord and tenant. However, retail tenancy legislation recognises that a lease might start before this time; for example if you take possession of the premises before the lease is signed, or a landlord offers in writing to rent premises to you on quite clear terms and you accept that offer.

Definitions of a retail lease vary in each State and Territory and in South Australia leases are governed by the Retail and Commercial Leases Act 1995. ("the Act")

What information must a landlord give me?

Before you enter into a lease, the landlord must provide you with a Disclosure Statement that contains details about the premises, what services the landlord pays for and what you might have to contribute towards outgoings and other services.  In South Australia a Disclosure Statement is required to be given by a landlord prior to you signing a lease.  The Disclosure Statement must also be in a form that complies with the Act.

The landlord should also give you a draft of the lease long before the time comes to sign it. This is so you can think about the rules and requirements described in the document and get advice. In all cases, make sure you get a draft of the lease to take away and think about.

What happens once I receive the lease?

You may be quite confident of reviewing the lease yourself; however it is advisable to have a solicitor review the general terms and conditions of the lease before you sign it, to make sure that it is a balanced and fair agreement. Once you have reviewed the lease for yourself, you will know what you have a good understanding of and will be able to narrow down the questions that you need to ask someone else to assist with. You need to be sure that you understand and are happy with each of the terms and conditions of the lease.

What are the important things I need to remember about a lease?

The lease will tell you things you have to do while you are a tenant. Some of the usual things that are in a lease are:

  • Pay all of the rent and all of the outgoings on time.

It is important to remember that, even if you believe that you are entitled to withhold or not have to pay rent or part of the rent for a particular reason (for example, you believe the landlord owes you money), the lease will normally prevent you from withholding any amounts from rent or outgoings.

  • When is your rent reviewed?

The date and method of review are important. In most, if not all, leases you may be required to give notice to exercise an option for you to renew the lease.  In most cases you must give notice within 3 to 6 months before the lease expires.  You must read and be aware of the time frame and method for the notice to renew.

  • Keep insurance current.

You will normally be required to provide the landlord with evidence that your insurance for professional indemnity and also in most cases, plate glass insurance is current.  Insurance must conform to the terms of the lease.  This means that it must be to a certain value and include the name of the landlord as an insured or interested party.

  • You must request the landlord's consent for certain activities.

Most likely you will be required to obtain the landlord's consent before you do certain things, like:

  • undertaking works on the premises;
  • mortgaging your lease or selling your business; and
  • assigning the lease to the buyer.

A lease can pose problems if you are not aware of what to look for and therefore it is very important that you engage a professional such as a solicitor to review the lease.

At the same time it is very important for landlords to have leases and associated documents professionally prepared when you wish to rent out your premises.  Badly drafted leases can cause problems between landlords and tenants, and not complying with the Act will cause problems.  In the end it's in both the tenant's and landlord's interest to ensure that a good landlord tenant relationship endures during the term of the lease by having all documents drafted properly and that both parties are aware of their duties and obligations under a lease.

Please note, this Blog is posted in Adelaide, South Australia by Andersons Solicitors. It relates to Australian Federal legislation. Andersons Solicitors is a medium sized law firm servicing metropolitan Adelaide and regional South Australia across all areas of law for individuals and businesses.

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