What to Check Before Signing a Commercial Lease in Hervey Bay

Signing a commercial lease is a major commitment for any business owner. Whether you are opening a retail store, professional office, café, medical practice, warehouse or service-based business in Hervey Bay, the lease you sign will affect your costs, obligations and flexibility for years to come.

Before you sign, it is important to understand exactly what you are agreeing to. Commercial leases are often long, detailed and heavily weighted in favour of the landlord. Once signed, it can be difficult and expensive to change the terms.

At Kalde Legal, we assist business owners and tenants with reviewing commercial leases before they commit. Here are some key things to check before signing a commercial lease in Hervey Bay.

1. Is it a commercial lease or a retail shop lease?

In Queensland, some business premises are covered by retail shop leasing laws. This can include many shops, restaurants, cafés and businesses located in shopping centres or retail precincts.

If the lease is a retail shop lease, additional rules may apply, including disclosure requirements and specific documents that may need to be provided before the lease is signed.

This is one of the first things to check because it can affect your rights, obligations and the process that must be followed before you enter into the lease.

2. What is the total cost of the lease?

The rent is only one part of the cost.

Before signing, you should check whether you are also required to pay:

• outgoings;

• council rates;

• water charges;

• land tax, if applicable;

• building insurance;

• maintenance costs;

• body corporate levies;

• marketing or promotion levies;

• electricity, gas, internet or other utilities;

• legal costs or lease preparation costs.

A lease that appears affordable at first can become expensive once outgoings and other charges are added.

You should ask for a clear breakdown of all amounts payable, when they are due, and whether they can increase during the lease term.

3. How long is the lease term?

The lease term should suit your business plan.

A short lease may give you flexibility but less security. A long lease may give you stability but can also lock you into premises if your business changes, grows, downsizes or relocates.

You should check:

• the start date;

• the end date;

• whether there is an option to renew;

• how and when the option must be exercised;

• whether the landlord can refuse a renewal;

• whether rent changes when the lease is renewed.

Options are particularly important. Missing an option deadline can mean losing the right to stay in the premises.

4. How will rent increases be calculated?

Most commercial leases allow rent to increase during the lease.

Common rent review methods include:

• fixed percentage increases;

• CPI increases;

• market rent reviews;

• a combination of different methods.

You should understand exactly when rent reviews occur and how much the rent could increase over time.

Market rent reviews can be particularly important because they may lead to uncertainty about future costs. If your lease includes market reviews, it should clearly explain how the market rent will be determined and what happens if the landlord and tenant disagree.

5. What are you allowed to use the premises for?

Every lease should include a permitted use clause.

This clause sets out what business activities you are allowed to conduct from the premises. If the permitted use is too narrow, it may restrict your ability to expand, adjust your services or change your business model.

For example, a business may start as a consulting office but later want to add training sessions, retail sales, allied health services or online fulfilment. If the lease does not allow those activities, you may need the landlord’s consent.

Before signing, make sure the permitted use properly reflects what your business does now and what it may reasonably need to do in the future.

6. Who is responsible for repairs and maintenance?

Repair and maintenance obligations are often a source of disputes between landlords and tenants.

You should check who is responsible for:

• air-conditioning;

• plumbing;

• electrical systems;

• fixtures and fittings;

• structural repairs;

• roof leaks;

• glass;

• signage;

• common areas;

• pest control;

• fire safety equipment.

Some leases require the tenant to maintain or repair items that can be expensive. This can be a particular issue where the premises are older or where equipment, such as air-conditioning, is already in poor condition.

Before signing, it is sensible to inspect the premises carefully and document the condition of the property.

7. Are there fit-out obligations?

If you need to fit out the premises, the lease should clearly explain what work is allowed and who pays for it.

You should check:

• whether landlord consent is required;

• whether council or building approvals are needed;

• who owns the fit-out at the end of the lease;

• whether you must remove the fit-out when you leave;

• whether you must make good the premises at your own cost.

Make-good obligations can be expensive. A tenant may be required to remove walls, counters, signage, flooring, cabling or other improvements and return the premises to a particular condition.

This should be understood before signing, not when the lease is ending.

8. Can you assign the lease or sell the business?

If you may sell your business in the future, you need to know whether the lease can be assigned to a buyer.

A lease assignment allows a new tenant to take over the lease, usually with the landlord’s consent.

You should check:

• whether assignment is allowed;

• what consent process applies;

• whether the landlord can impose conditions;

• whether you remain liable after assignment;

• whether there are fees or legal costs payable.

This is especially important for businesses where the lease is a key part of the business value. A buyer may not proceed if the lease cannot be transferred on acceptable terms.

9. Are there personal guarantees?

Many landlords require company directors or business owners to give a personal guarantee.

A personal guarantee means you may be personally liable if the tenant fails to pay rent or breaches the lease. This can expose your personal assets, even if the tenant is a company.

Before signing any guarantee, you should understand:

• who is giving the guarantee;

• how long the guarantee lasts;

• whether it continues after assignment;

• whether it is limited or unlimited;

• what happens if the lease is extended or varied.

Personal guarantees should never be treated as a formality.

10. What happens if things go wrong?

The lease should set out what happens if there is a dispute, late payment, breach, damage to the premises, relocation, redevelopment or early termination.

You should check the default and termination clauses carefully.

Important questions include:

• What notice must the landlord give before taking action?

• Can the landlord lock you out?

• Can interest or legal costs be charged?

• What happens if the premises are damaged by flood, storm, fire or another event?

• Can the landlord relocate your business?

• Can the lease be terminated early?

• What dispute resolution process applies?

For businesses in regional areas such as Hervey Bay, location and continuity can be very important. Losing premises or being forced to relocate may have a significant effect on customers, staff and goodwill.

11. Have you received the required disclosure documents?

Before signing, make sure you have received all required documents and have had enough time to review them.

Depending on the type of lease, this may include a disclosure statement, draft lease, outgoings information and other required documents.

Do not feel pressured to sign immediately. A lease should be reviewed carefully before you commit.

12. Have you obtained legal advice before signing?

A commercial lease is one of the most important documents a business owner will sign.

Legal advice can help you understand:

• your rights and obligations;

• hidden costs;

• unusual or unfair clauses;

• risks in the lease;

• whether the lease suits your business plans;

• what changes should be negotiated before signing.

Once the lease is signed, your negotiating position is usually much weaker.

Need help reviewing a commercial lease in Hervey Bay?

If you are considering signing a commercial lease in Hervey Bay, it is worth getting advice before you commit.

Kalde Legal can review your lease, explain the key risks, assist with negotiations and help you understand your obligations before signing.

Contact Kalde Legal to arrange a commercial lease review before you enter into a binding agreement.

This article is general information only and is not legal advice. You should obtain legal advice about your specific lease and circumstances before signing any commercial lease.