Looking to move into your first commercial property? You have two options: buy or lease. If leasing is your preferred choice, here are five basic facts that will help you get things up and running on your first commercial lease.
We get it. You have a business plan, you’re chasing growth opportunities and all you’re missing is the location. There are risks associated with buying a property which can make a commercial lease a better option for you.
A commercial lease tends to have a longer term
If you’ve entered the residential space before, you’ll know most residential leases are offered for a fixed one-year term. However, many landlords will prefer a longer-term agreement. If you’re starting a new business, it could be a good idea to negotiate a shorter term, but look for the ‘option clause’ in your agreement.
What’s an option clause? An option clause offers you the opportunity to renew your lease for an additional term. This, in turn, offers income security to the landlord, and even better - location stability for you.
The fit-out is your responsibility
If you’re entering a retail property space, the internal fixtures and fittings are required for your operations. This process is called ‘fit-out’ and will be done at your expense. In some cases, the landlord may offer it to you as an incentive to close the deal. Top tip: Ensure you incorporate fit-out costs into your budget.
When your lease comes to an end, remember you’ll also be responsible for ‘making good’. This means you must return the property to its original condition: removing fixtures, fittings and all additions, as well as repairing any damage that occurred during the lease.
An annual rent increase is normal
Your commercial lease will likely include an ‘escalation clause’. This clause may state that your rent will increase on each anniversary of the lease. Depending on your situation, this increase may be a fixed percentage value, or it could be annually reviewed to reflect the Consumer Price Index.
Good news: Rent increases cannot occur more than once a year. Your landlord must also offer adequate notice before they increase the rent. So, when you’re considering your next lease, think about how this escalation cause compares to your projected cash flow. The last thing you want is for the rent to climb out of your budget!
Having an agent manage your commercial property is a good move
Commercial property is a complex thing and there are many nuances to consider. If this is your first (or third) premise acquisition, consider talking to a professional commercial real estate agent.
You can only use your commercial property as the lease dictates
The way you’re permitted to use your commercial property will be outlined in your lease agreement. The permitted use explains the specific purposes that the property may be used for, anything from retail trading, cafe space, warehousing and distribution and more.
When it comes to your lease negotiation, consider:
- Your current business operations; and
- Any intentions you have to grow or diversify your business offering.
This clause can also stop you from assigning the lease to another person in the event you try to sell your business, so ensure the permitted use is kept broad.
Still looking for a new business premise? Find commercial property for lease at Australia’s newest commercial property website, Lease.com.au.