Understanding a Commercial Lease in Victoria
When starting a business, it is important to understand exactly what you need to do to ensure your business is legally sound. One vital component for many businesses is determining where it will operate and what a lease will be require. In this article, we will look the essential elements of a commercial lease.
What is a commercial lease?
It is important to understand the difference between a commercial lease and a retail lease. A retail lease is primarily concerned where the sale and supply of goods and services from a property take place. The classic example of this is a shop however retail leases cover many types of business operations. A commercial lease however applies to premises used for business, that are not of a retail nature. This may include many types of office spaces or warehouses which are not intended for retail activity.
A commercial lease outlines the rights and responsibilities of both the tenant and landlord which includes provisions such as:
– When to pay rent, and how much is to be paid;
– Annual increases in rent;
– Payment of outgoings on the property;
– Maintenance and repairs of the commercial property;
– Nature of business to be conducted at the commercial property;
– A lease renewal clause;
– Policy for breach or termination of contract;
– Obligations to refurbish the property at the end of the lease.
Who pays land tax on commercial leases in Victoria?
As a tenant, it is important to consider all expenses you will have to pay under a commercial lease. In addition to rent, a tenant generally also pays outgoings. One key distinction between a retail lease and a commercial; lease is that under a commercial lease a tenant will generally have to pay land tax. Other outgoings commonly include:
– Council Rates;
– Water Rates;
– Building Insurance; and
– Owners Corporation Fees.
Tenants often focus on a negotiation of rent, but it is equally important to understand what outgoings are going to be charged and focusing on whether the outgoing is reasonable.
Who can break a commercial lease?
It is important to recognise that when signing a commercial lease, both parties are agreeing that the tenant will lease the premises for the amount of time specified in the lease. This usually means that unless there is a clause in the lease allowing either party to end it, breaking a commercial lease isn’t possible for either the tenant or the landlord.
A landlord and tenant can mutually reach an agreement whereby the commercial lease can be ended early. This agreement must be in writing and should contain any other terms between the landlord and tenant which have been agreed upon as a part of the termination. This agreement is called a surrender of lease and once an agreement has been negotiated a formal document commonly known as a deed of surrender of lease is entered into.
Does a commercial lease need to be registered?
In Victoria unlike other states and except in certain situations it is not usual to register a commercial lease.
A tenant should always do a title search to check that the landlord does own the property being leased.
Do I need a solicitor for a commercial lease?
Yes, as commercial leases are prepared by the lessor, they generally tend to look after the landlords’ interests ahead of the tenants’ interests. Therefore, it is vital that when negotiating a commercial lease agreement, you work with a solicitor to ensure that your rights and interests are legally protected. Remember a commercial lease, when signed is legally binding agreement and can be for a long time. It is important that when navigating commercial leases, you get it right to ensure that your business is not locked in to an unfavourable lease which may over time have an adverse impact on your business.
Leases are important and need to be carefully reviewed. As experienced business lawyers based in the Melbourne CBD, we can assist you in advising a commercial contract that will protect you and your business.
Lord Commercial Lawyers is a commercial and business-focused law firm based in the Melbourne CBD. We work with businesses and individuals to help them achieve their legal and commercial goals.