Get These 4 Leasing Concepts Right and Secure Your Investment
As a landlord it is critical that the terms of your lease accurately reflect the entire agreement with your tenant.
There are four fundamental issues that must be dealt with and must be agreed upon before you enter into a lease with your tenant and must be recorded accurately for the good of both landlord and tenant.
The lease must reflect the start and end date of the term of the lease. This is fundamental as it affects how and when the use of the property is controlled by the tenant.
The landlord may not do anything to the premises that is not in accordance with the terms of the lease (and generally agreed upon by the tenant) during the term.
It should also be noted that under a retail lease (which covers most leases) the term and options must be at lease five (5) years in total.
Most leases include option periods after the initial term that the tenant may choose to exercise in order to extend the lease (provided the tenant has complied with the terms of the lease). Like the original term these periods affect who has control of the premises.
Landlords of retail leases should note in their forward calendars when they are obliged to notify tenants of the last date to exercise their option to renew the lease. Failure to notify a tenant of the option exercise date means the option exercise date is extended by a time period equal to the delay in notifying the tenant of their option.
If the lease does not record the rental you are expecting to receive, you may be locked into an agreement for many years receiving less than what you bargained on.
Leases are either set up as rental plus building outgoings or the outgoings are included into the rental and do not require the tenant pay separately. The advantage of having building outgoings payable on top is that the tenant pays the precise building outgoing amount while having the building outgoings built into the rental saves on administration and the landlord knows they are paid.
Retail leases may have their rental varied using the following means:
- A fixed percentage amount;
- the consumer price index (a government determined figure that reflects national inflation rates); or
- a market review (a price to be agreed between the parties, failing agreement by expert valuation).
Leases that are not covered by the Retail Leases Act may include different methods such as ratchet clauses that do not allow the rental to go down or fix a minimum increase at a market review.
If you get the above four matters correct your lease is well on its way to securing your investment for many years to come. Once you have agreed on the above four matters with your tenant you should get in contact with Phillips & Wilkins so that we can properly document the lease.
Will has developed a broad commercial practice in which he advises clients on business acquisition and sale, commercial agreements, commercial and retail leasing, and commercial litigation. Learn more about Will's legal experience.