Small businesses around Australia have taken the inquiries of leasing business premises with significant importance. Apart from the legal aspects of leasing business premises, the small businesses query about the practical and commercial side of lease premises decision making.
Any small business person needs an adequate guide that addresses essential matters before engaging in any leasing business premise agreements.
There are tenants of small businesses who enter into leases for their business to build and maintain goodwill over a long period. As such the business person should negotiate for leases that are commercially viable to enable them to meet their company needs. It is appropriate to have proper guidance on choosing the right lease to avoid pitfalls that occur when leasing business premises.
What is a lease?
In the commercial property sector, a lease can be referred to as an agreement between the landlord and tenant that has some certain conditions and terms that permit a tenant to occupy a business premise.
A lease will point out the landlord, tenant, premise in the agreement. It will also define the terms and conditions, liabilities, obligations and rights of each of the parties. It should also accommodate any periodic adjustment of rent and other outgoings.
Importance of lease to a business
A commercial lease is crucial to a businessperson who is looking for a space to rent. It also has some status and provisions that might prove advantageous or disadvantageous at the time of leaving the premises. It dictates the future sales of the business, the value of the business and goodwill making it vital for the profitability of any particular business.
Although occupancy costs are the key overheads, other issues need to be discussed and agreed upon amongst the parties. If the issues in the lease are unsuitable for the tenant, it may result in business failure. Therefore, even though a lease might sometimes be complex, it important to completely comprehend your lease either on your own or through assistance before making commitments and signing a lease. Failure to understand could prove costly and make a business fail. It is because it results in loss of important rights or even breach of the lease contract.
The key objectives to consider in a lease
Laying out the key business objectives is the first thing to take into account before any lease premises decision is made. The key objective is to nurture the profitability of the business where every effort ought to be focused.
If a business is profitable, it will be easy to achieve other objectives like freedom of lifestyle or independence. Other common objectives can be to have a lease that:
- enables premises to have a designated income that is sustainable to the business
- Easily transferable upon leaving the premises to provide both medium and long-term return on capital.
- Permits a business to grow and expand comfortably.
It will be wise for an investor not to be limited to 1 or 2 objectives but try to accommodate several objectives even though they should be commercially viable.
To ensure that a lease is implemented carefully;
- Identify and plan out the desired objectives.
- Monitor to check whether the premise is capable of achieving the objectives.
- From time to time, review the objectives to examine any changes.
Why you should carefully consider a lease
As you carry out the objectives, you should keep in mind that leasing premises are not the only way since there are other several options to attain the objectives. For instance, if the business is at its infancy stage, you may opt to operate from home or rather buy the premises out rightly. You should also carefully consider the tax position and the available capital for the business.
When you choose the lease option;
- The lease should result in business improvements and growth.
- Ensure that the business will make a profit as well as cover rent and set up costs required.
Afterwards, just ensure you comply with the terms and condition to demonstrate that the leasing option is necessary.
Importance of acquiring the right advice
Unwary and experienced investors can become victims to traps that premise leasing possesses as it is a bit complicated. With so many legislation and changing trends that regulate leases, many business owners may not have adequate knowledge of commercial tenancy arrangements. Hence, advice will come handy to help first time people who are in business navigate well.
Sometimes a lease may have standard and simple clauses, but sometimes it may have complex issues to comprehend. Advice will enable an investor to be aware and attend to the problems like the inclusion of a lease that has a substantial additional expense. The cost of a poorly negotiated lease is many times more as compared to the money and time cost for advice that would lead to an acceptable lease.
The individual who will initiate the negotiations for the rent, term, rent review proposals will tend to have an advantage in the process. However, with appropriate advice, a tenant will make an informed decision on more acceptable lease terms matters.
What to consider when seeking leasing advice
Some business tenants approach their friends or relatives with some experience on lease or leasing premises. Though this kind of information can be valuable, it is not adequate, and therefore some professional advice will be necessary.
Usually, the professional advice is there to assist in the comprehension of the proposed lease. So taking the initiative to read and understand the lease is crucial. This way you would fully involve in the process making the advisers aware of the business. In return, you will receive that will enable you to make informed decisions.
Things to take into account when taking advice
A commercial and legal advice will be appropriate before making certain actions in the lease negotiation process such as;
- Incurring other obligations or making any lease commitments.
- Signing a lease related document or an offer to lease.
- Deposits or any related monies payments
- Occupation of the leased premises.
To be able to ensure that property and business principle are adequately employed on the lease, also seek some property and business advice to accompany financial and legal advice you have obtained.