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Commercial Leases in WA

Written by Michelle Makela

Michelle Makela is one of our Legal Practice Directors and the National Practice Manager. She holds a Bachelor of Laws, a Bachelor of Science (Psychology) and a Master’s in Criminology. Michelle has had a varied career, working in commercial litigation, criminal law, family law and estate planning. Michelle joined Go To Court Lawyers in 2011. She now supervises a team of over 80 solicitors across Australia.

Understanding commercial leases in WA can be daunting, particularly if you are entering into business for the first time. Leases are complicated documents and unless you understand them thoroughly it is easy to make mistakes. Poorly drafted terms, and a failure to understand your rights and obligations under the lease could cost you dearly. It is vital to understand every aspect of your lease before you sign and to obtain expert legal and financial advice before committing to the contract.

Getting Started – What to do before you sign

There are a great number of factors you must consider before committing to leasing a commercial premises, most of which relate to whether the property is the right fit for you and your business. You must ‘do your homework’ to ensure that when it comes time to negotiate the terms of your lease you understand your minimum requirements – what you are happy to negotiate and what you simply won’t budge on.

It is best practice to ensure all representations and statements made by the landlord and their agents are made in writing. Seek thorough legal advice before signing any documents (the lease included), moving into the premises or paying a deposit.

Commercial Tenancy (Retail Shops) Agreements Act 1985

A vast number of commercial leases in WA will be regulated by the Commercial Tenancy (Retail Shops) Agreements Act 1985. Important amendments were made to this Act and its Regulations in early 2013, so if the Act relates to your lease it is vital to be aware of how it affects you.

The Act requires the Landlord to perform a number of disclosure-related tasks before the lease is signed, including providing the Tenant with copies of:

  • a disclosure statement
  • the proposed lease itself
  • the Tenant Guide, and
  • a budget outlining operating expenses.

As a tenant you should ensure all documentation is in order before finalising the lease. And even where your lease doesn’t fall under the requirements of the Act it is best practice to request a disclosure statement in any event.

Essential Terms

Your must ensure your commercial lease contains terms which are specifically tailored to your business, to ensure that you operate profitably. Some key terms to consider are listed below:

  • (a) Permitted Use – Ensure the lease allows you to use the premises for the purpose you require, including any future proposed business ideas so that you can expand your business accordingly. Also ensure the lease allows you access to common areas if required (eg driveway, car park), to erect signage, and access facilities (eg toilets).
  • (b) Fixtures and Fittings – When you first take occupation of the premises, ensure a detailed condition report is prepared by the landlord and signed off by you. If your lease contains a ‘make good’ clause you will need to return the premises to the state it was in when the lease commenced, the condition stated in the entry condition report.If you require, as most businesses do, to erect walls, partitions, fittings and fixtures, ensure that the lease allows you to do so. 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 which 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.
  • (c) Term of the Lease – Determining the length of time required for your 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 the goodwill.
  • (d) Assignment – An assignment clause will allow you to assign the lease to another tenant should you choose to sell or wind up your business. You should ensure that your lease contains such a clause, and that it also allows you to sublet should you choose. However, take careful note of your liability under an assignment or sublet, as you may still be liable for outgoings (such as rent) and other obligations, should the sublet tenant default.
  • (e) Termination and Relocation – Clauses which allow the landlord to terminate the lease early, or redevelop the property during the lease, should be avoided, on in the very least should ensure adequate compensation is provided to you, the tenant, in lieu of the losses and costs you will suffer as a result.
  • (f) Costs – Costs clauses in commercial leases in WA should be reviewed with care. Be aware of your liability to pay a bond, repairs and maintenance and insurance costs. In particular, ensure the lease does not include any unsuitable indemnity clauses, whereby you are obliged to indemnify the landlord for expenses incurred by them during the term of the lease.

Dispute Resolution For Commercial Leases in WA

Should you find yourself at odds with the landlord over the terms of the 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 try a more formal approach, such as taking the dispute to the Small Business Commissioner, who will attempt to assist the parties by direct negotiation and mediation.

Finally, you may need to seek legal advice with a view to pursuing the matter through the State Administrative Tribunal or law courts.

It is vital that you obtain expert advice regarding your commercial lease before you sign, as avoiding pitfalls early on may save you a great deal of time and money later. If you would like further advice, contact our experienced property Solicitors at Go To Court Lawyers on 1300 636 846.

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