8 Things You Need To Know Before Entering a Business Lease Agreement

1. What is a business lease agreement?

Business lease agreement is also known as commercial lease or retail lease. It is a formal written document that outlines all the terms and conditions of the lease life including rent, outgoing, marketing levy, etc. Once the business lease agreement is signed, both parties are bound to the agreement legally.

2. What clause in a business lease agreement need to pay attention to?

In a business lease agreement, you should pay attention to all the clauses that outline your financial liabilities including rent, rent increase percentage, bond/bank guarantee/ security deposit, outgoing, marketing levy, electricity, council rate and charges and over time opening cost ( only applied in retail leases in Shopping Centers).

3. What is the difference between bond/bank guarantee/ security deposit in a business lease agreement?

Normally, in commercial lease, the Lessor may ask for a bond of 3 to 6 months. The terms bond and security deposit are used interchangeably. The fund is normally held by third parties like Land Revenue or in a trust account. Bank Guarantee is an advance fund from the Lessee being held by the bank in favor of the Lessor. The Lessee must apply for a Bank Guarantee at the bank they have an account with, the fund in that account will then be held by the Bank. The Bank will then issue the Bank Guarantee Certificate showing the amount and the favouree as the Lessor. The cost for a Bank Guarantee to be issued is around $250 AUD and the original must be given to the Lessor for file. At the end of the Lease, the original should be returned to the Lessee for the fund to be released.

4. How long is the process?

The Lease discussion for a business lease agreement may be varied sometime between 2 weeks to 2 months depending on the complexity of the Lease negotiation.

5. What if I want to sell my business mid-term of the Lease?

In a business lease agreement, there is a clause called Lease Assignment which allows you to transfer the Lease in case of selling your business. The Lease Assignment process is set out in the Lease and will involve costs from multiple parties.

6. How does the Lease Assignment work?

In a business lease agreement, if a sale of business occurs, the lessee must apply for a consent from the Lessor to have the lease transfer. The cost of the Lessor administration fee is varied between $2,000 to $5,000 AUD, plus any additional costs of the legal fees.

After the consent is given, the Lessor will issue the Lease Assignment documents to the incoming and exiting lessees for final execution.

7. What if the Lessor takes the premises back in the middle of the Lease?

Usually, in any business lease agreement whether it is commercial or retail, the Lessor will only take the premises back based on the termination clause in the lease. Another note is that the Lessor may have a plan to develop the whole building/Center.

8. Who should I go to for help with a business lease agreement?

You can seek help from professionals like solicitors, business advisers, business consulting firms. It is not compulsory but it will be beneficial for you to go to a professional since a business lease agreement is a complex document, which entails a lot of details that impact your rights and obligations in the long term. Brydan Woods Consulting will be able to answer all of your questions about your current lease situations. Contact us today.