Review permitted use, guarantees, outgoings, make-good obligations and insurance clauses before committing to a commercial lease.
Rent is only one part of the cost of a commercial lease. Fit-out, outgoings, guarantees, repairs and end-of-lease obligations can affect the business long after the keys are handed over. A useful review combines legal, financial and insurance advice before you commit.
The exact position depends on the lease, the premises and the applicable state or territory law. Retail and other commercial leasing arrangements may be treated differently, so avoid relying on a generic checklist as a substitute for advice on your agreement.
Confirm the premises can be used for your business
Check planning and council requirements, permitted use, access, signage and any works needed before trading. A previous tenant’s business does not necessarily establish approval for your proposed activities.
Ask your leasing adviser whether the agreement should be conditional on required approvals and how fit-out access will work. Clarify what happens if approvals are delayed or refused, rather than assuming that signing the lease resolves those issues.
Understand guarantees and the full cost
A personal or director’s guarantee can create obligations beyond the tenant company. Have its scope, limits, duration and release conditions explained before signing. Also review any cash bond or bank guarantee and how it can be called upon.
Budget for the total occupancy cost: rent reviews, utilities, levies, maintenance, agreed outgoings and fit-out. Check whether figures are gross or net of outgoings, and how future increases are calculated. Avoid treating an initial incentive as a reliable measure of the cost over the whole lease term.
Agree who repairs, maintains and makes good
Identify responsibility for the building, equipment, fittings and services. For example, a failed air-conditioning system can disrupt the business while the parties argue about who must repair it. Record the premises’ condition at the start and obtain advice about repair standards and urgent work.
Make-good provisions may require the tenant to remove fit-out or reinstate the premises at the end. The extent of that obligation is not the same in every lease. Review it alongside renewal options, assignment, subletting and early-termination provisions before committing.
Read insurance clauses before arranging cover
A lease may specify types of insurance, limits, evidence of cover and how the landlord’s interest is to be noted. Give those clauses to your broker. Public liability, glass, contents and fit-out may be relevant, but the required arrangement depends on the agreement and activities.
An insurance certificate does not by itself prove that every indemnity or contractual promise in the lease is covered. Discuss any wording requiring additional insured parties, waivers or responsibility for property belonging to others. Obtain confirmation of what can actually be arranged.
Bring the review together
Keep the draft lease, disclosure documents, fit-out plans and proposed insurance together. Your solicitor or leasing adviser can address legal obligations, your accountant can help assess affordability, and your broker can review insurance requirements and relevant limitations.
Resolving these questions before signing is usually more useful than discovering a mismatch when a claim, repair or lease dispute arises.
Adapted from material previously supplied for Aushine client communications. This website edition has been edited; the Chinese edition is a translation of the edited text. General information only: it does not confirm cover or take account of your objectives, financial situation or needs. Consider the applicable policy documents and obtain advice appropriate to your circumstances.
