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Why Should You Engage a Lawyer When Negotiating a Commercial Lease?

By 28 June 2021May 20th, 2022Property Law
Erina Business Lawyers

While there is various government legislation applying to a commercial lease, they are essentially contractual in nature.

This means that common law contract principles are important when negotiating the terms of the lease and the clauses relating to renewal, termination, dispute and other possible issues.

While anyone can sign a lease, doing so without guidance from a legal professional who has experience in the finicky details of contract law and property leases is unwise.

Hard-headed negotiations are sometimes required between a landlord and a commercial tenant, which will benefit from a knowledgeable lawyer as the intermediary. Ultimately, the parties to the lease will in most cases wish to quarantine their relationship from squabbles over contract terms relating to the commercial lease.

What needs to be considered in a commercial lease?

Whether it’s a retail lease, a lease of factory or warehouse premises, or a lease on the land, there are several important questions the lease-holder needs to ask before signing a contract.

Key among these are:

  • The terms of the lease and the option for renewing it – what is its duration and how is the option to renew exercised (more on this below)?
  • How much is the rent, how often is it payable and what is the process/timeframe by which rent is reviewed?
  • Apart from rent, which expenses and costs related to the property are the responsibility of the landlord and which are the tenants’? The costs of waste collection, water usage, electricity and other overheads need to be clarified in the lease.
  • Is there a bond to be paid? Not all commercial leases include payment of a bond but if one is part of the lease, how is it returned after the lease and under what circumstances may it be withheld?
  • Which party is responsible for fixtures and fit-outs? If there is no agreement between the parties, in a retail lease it’s generally presumed to be the tenant’s responsibility.
  • How are repairs and maintenance of the property to be carried out? This is a common area of dispute in commercial leases and should be clearly defined in the lease.
  • Depending on the length of the lease, what the lease-holder is permitted to do in terms of refurbishment and renovation of the premises.

Additional issues such as permitted uses of the premises (types of business that can operate there), whether subletting of the lease is permissible, insurance and the obligations of each party at the end of the lease also need to be negotiated before the legally binding lease is signed.

Most commercial leases exceed three years (including options to renew), requiring registration with the NSW Land Titles Office. If the lease is funded through a mortgage, consent from the mortgagee must be obtained before registration.

All of these important issues are dealt with by an experienced lawyer when negotiating a commercial lease on behalf of a client. At Felicio Law Firm we take an exhaustive approach so that no potential issue is left unaddressed before signing a commercial lease. We will make sure you can achieve the best possible terms for your commercial lease by taking a line-by-line approach to the document.

Dispute resolution

It’s not uncommon for a dispute to arise between a commercial landlord and tenant during the term of the lease over any of the issues discussed above.

While the resolution of the dispute may be achieved by a straightforward chat between landlord and tenant, there are situations where the dispute may need to be escalated to a statutory body such as the Registrar of Retail Tenancy Disputes or the NSW Civil and Administrative Tribunal for adjudication.

Again, expert legal representation by a firm with years of knowledge in handling commercial leases is crucial, whether you’re landlord or tenant.

Lease renewal and termination

The advice of a commercial lawyer is particularly advisable in relation to the renewal or termination of a commercial lease.

Most commercial leases will include an option to renew, with the landlord obliged to grant the lease-holder a further lease subject to conditions of the existing lease being complied with.

Exercising the option to renew requires certain steps such as doing so within the notice period and correct service of the acceptance of the option which, if not properly followed, may result in loss of the right to do so. This is why good legal advice is essential.

Likewise, there are numerous ways to terminate a commercial lease, some of which may be detailed in the clauses of the contract. A lease-holder may ‘surrender’ a lease, though the landlord is under no legal obligation to accept this method. Usually, it will be done through a process of negotiation, which Felicio Law Firm can facilitate for you.

In other situations, termination may be achieved by an early termination clause, assignment of your rights and obligations under the lease to a new tenant or some other method.

In any of these scenarios, expert legal advice will help you avoid common pitfalls.

Consult us today

Felicio Law Firm can offer guidance and advice on all commercial lease matters discussed in this post. We are highly experienced in conducting negotiations between landlords and tenants, as well as managing disputes should they arise during the term of the lease.

Contact us Erina lawyers today for an initial consultation.