Do you know if your landlord can give you notice to terminate your lease?
How quickly will you need to relocate your business and what would the impacts be?
For most businesses with a physical location, tenure security is critical to the business. It’s key to know if and when your Landlord could terminate your lease and what the business implications would be should this occur.
Commercial leasing can be a complex process with numerous considerations to consider. When it comes to creating tenure security in your commercial lease, there are 12 ways that you can negotiate with your landlord to protect your tenancy and ensure that your business operations are uninterrupted. Here are the first six for you to consider:
- Negotiate a longer lease term: A longer lease term can provide you with greater certainty and stability for your business operations. It also shows your landlord that you are committed to the property and provides them with assurance that they will have a reliable tenant for an extended period of time.
- Negotiate a renewal option: Including a lease renewal option in your lease agreement provides you with the ability to extend your lease and remain in the property for a longer period of time. This can be especially important if you have invested a lot of time and money into customising the space for your specific business needs.
- Establish rent increase terms: Rent increases can be a concern for small business owners, especially if they are unexpected. Establishing clear and predictable rent increase terms can help to avoid any surprises or disagreements over rent obligations.
- Negotiate an assignment and subletting clause: Including an assignment and subletting clause can provide you with greater flexibility to assign or sublet the space to another business if your needs change. However, it’s important to note that your landlord may want to maintain control over who occupies the space, so negotiation around this clause will be crucial.
- Negotiate an expansion and contraction clause: Including the ability to expand or contract your leased area allows for future changes in your business needs for the property, while continuing to lease the site. It’s important to negotiate this clause carefully to ensure that it meets your needs and doesn’t result in any unexpected costs or liabilities.
- Negotiate a termination clause: Including a termination clause in your lease agreement can provide you with an exit strategy if your business needs change or if the property is no longer suitable for your needs.
- Negotiate a first right of refusal clause: If you do not lease the entire building/space, a first right of refusal clause over any other space that may become available provides you with flexibility if you have outgrown your space. This clause gives you the first opportunity to occupy additional space while continuing to lease your existing space.
- Specify maintenance standards: It’s important to ensure that the property is properly maintained to avoid any disputes or safety hazards. Specifying maintenance standards in your lease agreement can provide clarity around maintenance responsibilities and expectations.
- Include a force majeure clause: A force majeure clause can protect you in the event of unforeseen circumstances that could impact your ability to operate your business in the leased space, such as natural disasters or government-mandated closures. This was particularly highlighted by COVID-19.
- Specify a flexible permitted use of the space: Allowing for any use permitted by law can prevent any disputes over the use of the property and ensure that the property meets your business needs. These future proofs your lease in the event that your business model changes, or you wish to sublet or assign the space.
- Include mortgagee consent: A requirement for the landlord to obtain mortgagee consent can provide you with protection in the event of the mortgagee (bank) foreclosing on the property. If the bank forecloses, having obtained their consent to the lease means that the bank must uphold the lease.
- Register your lease: This provides protection if the landlord sells the property. If the lease is registered, the new landlord must uphold the lease.
The importance of each of these points will depend on your specific needs and concerns as a small business owner. It’s recommended that you seek professional advice from legal and industry experts when negotiating commercial lease agreements to ensure that the lease terms provide the most effective tenure security for you and your business.
As an advocate for small business owners, we strongly recommend that you carefully consider how to create tenure security when negotiating your commercial lease agreement.
If you are a tenant and need assistance with your rights under your lease, contact the tenant advocates at Thrive Commercial on 0432 771 275 or book a free call at https://www.thrivecommercial.com.au/.
