It is essential that people and businesses fully understand what they are committing to before putting pen to paper and signing a lease. If you are an individual or business that is looking to sign a lease, here are some things you should look out for before signing:
Lease terms:
The lease document will contain terms and conditions regarding the property being leased. As the lessee, you should look out for a few features and determine whether these features are satisfactory to you or if anything raises a concern. Such features may include the length of your lease; having an option to renew; termination of the lease; its permitted use; ‘make good’ at the end of the lease; ability for the lessor to terminate your lease early and on what grounds can they do that such as redevelopment, breach of an essential term, etc.
Rent:
It is also pivotal to review the amount of rent you are required to pay the lessor. This involves looking at the basis and frequency of your rent reviews or changes that occur, including the annual CPI reviews, market rent review, fixed percentage. There may also be a rent-free period expressed in your lease and it may be important to distinguish when that is and for how long this lasts.
Costs:
As a lessee, you may also be required to pay not only rent, but several other occupancy or outgoings costs. You need to ensure you have read and understood what responsibilities you have and what is owed to you as a lessee whilst also differentiating what is payable by you and what is payable by the lessor. You can explore how such costs can be claimed from you, as well as seeing how the costs can be adjusted annually based on the statement the tenant provides to you. This statement should illustrate what the actual expenses incurred from the end of the financial year and a budget of expenses on the commencement of a financial year.
Lessor’s obligations:
It is the agent or lessor’s responsibility to tell you of any problems about the property or if there are any health and safety risks prior to signing. The lessor must also provide you with several documents at least seven days prior to entering into the lease. Such documents include:
- Disclosure statementProposed tenancy agreement
- Tenant information statement
- Two copies of the condition report completed by the landlord or agent
- Copy of the by-laws (if property is in a strata scheme)
- An invitation to lodge the bond using Rental Bonds Online
- Current year’s itemised expenditure for the premises
Statute also requires Lessors to carry out certain works including:
- Repairing the property (especially in shopping centres)
- Provide audited statement of annual outgoings
- Cover own legal costs
- Send notices and reminders regarding renewals and options
The Retail Leases Act 1994 provides more information on leases if you wish to learn more.
Seeking legal advice is important!
It is important to seek professional advice on signing a lease. It allows lawyers to review the document to ensure that all the terms and conditions comply with the law and if necessary, negotiate with the lessor on the terms of the lease.
A lease is a legally binding commitment therefore it is pivotal that you as an individual or business take time to review the lease to note any questions, clarifications, or red flags before signing.
If you have any questions about this article or would like us to prepare, review or advise on a Lease, please feel free to contact Frank Law on (02) 9688 6023.
This is not legal advice.
