Commercial Leases (WA)
In Western Australia, commercial leases may relate to retail or non-retail premises. A lot of commercial leases in WA are regulated by the Commercial Tenancy (Retail Shops) Agreements Act 1985. This page deals with commercial leases in WA.
Signing a commercial lease
There are a great number of factors a person should consider before committing to leasing commercial premises, most of which relate to whether the property is the right fit for the business.
It is important to have a clear sense of what your minimum requirements are: what you are happy to negotiate and what you simply won’t budge on. Then when it comes time to negotiate the terms of the least, you know what you are willing to compromise on and what you are not.
It is a good idea for all representations and statements made to the landlord and their agents to be made in writing so that there is a record of any negotiations that have taken place.
Seek thorough legal advice before signing any documents or paying a deposit.
The Commercial Tenancy (Retail Shops) Agreement Act 1985 requires a rental provider to perform a number of disclosure-related tasks before a retail lease is signed, including providing the tenant with:
- a disclosure statement
- the proposed lease
- the Tenant Guide, and
- a budget outlining operating expenses.
Tenant should ensure all documentation is in order before finalising the lease. Even where a lease does not fall within the ambit of the Act, it is best practice to request a disclosure statement.
Commercial leases should contain terms that are specifically tailored to the business, to ensure that it operates profitably.
Some key terms to consider are listed below:
A person should ensure the lease allows them to use the premises for the purpose they require, including any future proposed business ideas so that you can expand your business accordingly. They should also ensure the lease allows them access to common areas if required (eg driveway, car park), to erect signage, and access facilities (eg toilets).
Fixtures and Fittings
When a tenant first takes occupation of premises, they should ensure a detailed condition report is prepared by the landlord and sign off on it. If the lease contains a ‘make good’ clause, they will need to return the premises to the state it was in when the lease commenced.
If you need to erect walls, partitions, fittings and fixtures, ensure that the lease allows you to do this. The lease should also specify at whose expense the fittings will be installed and removed. Be sure not to overlook the more obscure items like the relocation of electrical work and plumbing.
Beware of terms that allow the landlord to bring forward the handover date, as you may find you need to start paying rent before the fit-out is complete and your business can operate, leaving you with costly expenses before you begin trading.
Length of the Lease
Determining the length of time required for a lease is crucial to ensuring you fulfil your long-term business plan and maximise your profits, and will depend on the type of business you are seeking to operate.
An established business may operate well with a long-term, fixed lease, while a new start-up business may be better suited with a short initial term with options to renew should everything run well.
The term of the lease is also important for ensuring the goodwill you grow over time is maximised, as a lease that terminates at the height of business profitability could severely impact on goodwill.
An assignment clause will allow you to assign the lease to another tenant should you choose to sell or wind up the business. However, take careful note of your liability under ant clause that allows you to assign or sublet the lease, as you may still be liable for outgoings (such as rent) and other obligations, should the subtenant default.
Termination and Relocation
Clauses that allow a landlord to terminate a lease early, or to redevelop the property during the lease, should be avoided wherever possible. If such a clause cannot be avoided, the tenant should ensure that adequate compensation is provided to them in the event that early termination occurs. This will help to make up for the losses and costs they will sustain as a result.
Costs clauses in commercial leases should be reviewed with care.
A tenant should be aware of their liability to pay a bond, repairs and maintenance and insurance costs. Tenants should ensure leases do not include any unsuitable indemnity clauses, whereby they are obliged to indemnify the landlord for expenses they incur during the term of the lease.
Dispute Resolution For Commercial Leases
Should you find yourself at odds with a landlord over the terms of a commercial lease or the leasing process, there are a number of ways you can attempt to address the issue, beginning with direct negotiation.
Should that fail, you may take the dispute to the Small Business Commissioner, who will attempt to assist through direct negotiation and mediation.
If a resolution cannot be negotiated, you may need to seek legal advice with a view to pursuing the matter through the State Administrative Tribunal or through the courts.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.