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The Top 50 Things You Need to Know About Commercial Leases

CM Law’s The Ultimate List: The Top 50 Things You Need to Know About Commercial Leases

Entering into a commercial lease in Australia, particularly in New South Wales (NSW), involves understanding various legal, financial, and practical obligations. It's essential for both landlords and tenants to be well-informed about their rights and responsibilities to ensure the lease agreement is fair, enforceable, and aligns with business objectives.

The following are the top 50 questions people need to consider regarding commercial leases in NSW, specifically tailored to reflect local regulations. These points will help guide your review or negotiation process, ensuring you are protected and aware of your obligations and rights.

  1. What Type of Lease Am I Entering Into? Understand whether it’s a Retail Lease, Gross Lease, Net Lease, or another type specific to NSW, as this determines the financial obligations of each party.
  2. What Is the Lease Term? Consider the length of the lease and any renewal options. Ensure the term aligns with your business needs and future plans.
  3. How Is the Rent Structured? Review the base rent, any annual rent increases (often referred to as "rent review" in NSW), and any turnover rent if applicable.
  4. What Are the Outgoings I Am Responsible For? Understand which outgoings, such as council rates, water rates, and insurance, are payable by the tenant and how these are calculated.
  5. What Is the Security Deposit or Bank Guarantee Requirement? Check the amount and conditions for the security deposit or bank guarantee required by the landlord, and whether it must be lodged with NSW Fair Trading.
  6. What Are the Permitted Uses of the Premises? Confirm the lease specifies permitted uses, and ensure these align with your intended business activities to avoid breaches.
  7. Are There Any Exclusivity Clauses? Look for clauses that restrict the landlord from leasing to competitors within the same property or shopping centre.
  8. Can I Assign or Sublet the Lease? Understand the conditions under which you can assign (transfer) or sublet the lease to another party, including any required landlord consent.
  9. Who Is Responsible for Repairs and Maintenance? Clarify whether the tenant or landlord is responsible for repairs and maintenance, including structural and non-structural repairs.
  10. What Are the Rules Regarding Alterations and Fit-outs? Determine the rules around making alterations or fit-outs to the premises and who bears the cost, as well as approval requirements.
  11. What Are the Insurance Requirements? Review the insurance requirements, such as public liability, plate glass, and other relevant insurances, and confirm the minimum coverage amounts.
  12. Do I Need to Provide a Personal Guarantee? Be aware if the landlord requires a personal guarantee, making you personally liable for rent and other obligations if your business defaults.
  13. How Are Property Taxes and Rates Handled? Understand whether land tax, council rates, and other charges are included in the rent or if you will be billed separately.
  14. What Are the Indemnification Obligations? Review any clauses requiring you to indemnify (compensate) the landlord for certain losses or damages.
  15. Are There Co-Tenancy Requirements? Check for co-tenancy clauses that might allow you to terminate the lease or seek rent reductions if certain anchor tenants leave or close down.
  16. When Can the Landlord Enter the Premises? Know the landlord’s rights of access, including notice requirements and permissible reasons for entry, such as inspections or repairs.
  17. What Constitutes a Breach or Default Under the Lease? Understand what actions or omissions constitute a breach or default and the consequences or remedies available to the landlord.
  18. Are There Early Termination Options? Review any early termination clauses, including notice periods and potential penalties for ending the lease before its term.
  19. What Is a Force Majeure Clause and Does It Apply? Ensure the lease includes a force majeure clause that covers events beyond your control, like natural disasters, and understand its application.
  20. Is There a Tenant Fit-out Contribution? Check if the landlord offers any contribution towards fit-out costs and the conditions attached to receiving this allowance.
  21. Are There Environmental Obligations I Should Be Aware Of? Ensure compliance with NSW and federal environmental laws, especially if dealing with hazardous materials.
  22. Is the Premises Compliant with the Disability Discrimination Act (DDA)? Confirm whether the property complies with the Disability Discrimination Act and whose responsibility it is to make any necessary modifications.
  23. What Are My Signage Rights? Clarify the rights and restrictions concerning signage, including size, location, and whether approval is required from the landlord or local council.
  24. What Are the Parking Arrangements? Understand how parking is allocated, any restrictions, and whether there are additional fees for parking spaces.
  25. Who Is Responsible for Utilities? Determine which utilities you are responsible for, how they will be metered, and how the costs are to be shared or billed.
  26. What Are the Build-Out Requirements? Review any obligations for building out or fitting out the premises to suit your business, including deadlines and compliance with local regulations.
  27. What Is the Initial Condition of the Premises? Document the condition of the premises before moving in to prevent disputes regarding repairs or damage upon vacating.
  28. What Are the Renewal Terms? Understand your rights and obligations concerning lease renewal, including any rent adjustments and notice periods.
  29. What Happens If I Stay Beyond the Lease Term? Be aware of "holding over" provisions, which detail the rent and conditions if you stay beyond the lease term without renewal.
  30. Do I Have a Right to Quiet Enjoyment? Ensure the lease includes a covenant of quiet enjoyment, which protects your right to operate without unreasonable interference from the landlord.
  31. Is There an Exclusive Negotiation Period for Renewal? Check if there is a period during which you have exclusive rights to negotiate a renewal or extension before the lease expires.
  32. What Happens If the Landlord Declares Bankruptcy? Understand your rights and obligations if the landlord becomes insolvent or enters into administration.
  33. Are There Any Landlord Liens on My Property? Review clauses that may give the landlord a lien (security interest) on your property for unpaid rent or other breaches.
  34. What Are My Obligations for Environmental Remediation? Clarify your responsibilities for any environmental clean-up or remediation that may be required.
  35. Is the Use of the Premises Compliant with Local Zoning Laws? Ensure the premises comply with local zoning laws and that your intended use is permitted under those laws.
  36. What Is the Effect of a Subordination, Non-Disturbance, and Attornment Agreement (SNDA)? Review SNDA clauses to understand how your lease will be treated in case of a sale or foreclosure of the property.
  37. Which Law Governs the Lease and Where Can Disputes Be Resolved? Know the governing law (usually NSW) and the jurisdiction specified for resolving any disputes.
  38. What Is an Estoppel Certificate, and When Might I Need to Provide One? Understand your obligation to provide an estoppel certificate, confirming certain facts about the lease upon the landlord's request.
  39. Do I Have Any Rent Abatement Rights? Review your rights to a reduction or abatement of rent if the premises become unusable due to damage or other events.
  40. What Happens If the Property Is Compulsorily Acquired? Check for clauses that address your rights if the property is taken by the government under compulsory acquisition.
  41. Can the Landlord Relocate My Business Within the Property? Be aware of any relocation clauses that allow the landlord to move your business to another location within the property.
  42. Does the Landlord Have Recapture Rights? Understand any rights the landlord may have to reclaim the premises if you attempt to assign or sublet the lease.
  43. Can I Audit the Landlord’s Operating Expenses? Know your rights to review and audit the landlord's calculation of operating expenses and the process for disputing any charges.
  44. Can I Terminate the Lease if the Property Is Damaged? Review the terms that allow you to terminate the lease in case of significant damage to the property.
  45. What Is the Landlord’s Financial Standing? Investigate the financial standing of the landlord to ensure they can meet their obligations under the lease.
  46. What Are the Obligations of the Lease Guarantor? Clarify any obligations or conditions placed on a guarantor of the lease, including their liability scope.
  47. What Is the Status of Fixtures and Trade Equipment? Determine which items are considered fixtures (property of the landlord) versus trade equipment (your property).
  48. Are There Any Confidentiality Requirements? Be aware of any clauses restricting the disclosure of lease terms or negotiations.
  49. What Are the Dispute Resolution Mechanisms? Understand the dispute resolution methods outlined in the lease, such as mediation, arbitration, or litigation.
  50. What Is My Exit Strategy from the Lease? Plan your exit strategy, considering options like assignment, subleasing, or early termination, and the associated costs or penalties.
  51. These questions and considerations are crucial for anyone involved in a commercial lease in NSW, helping to ensure a fair and mutually beneficial agreement.