Entering a Retail or Commercial Lease in the 2022 Economy: Key matters to consider for landlords and tenants

THIS ARTICLE IS GENERAL OPINION AND SHOULD NOT BE TAKEN AS LEGAL ADVICE SPECIFIC TO AN INDIVIDUAL.

As day-to-day life begins to resemble something slightly more akin to life before the pandemic, we are seeing more new leases being entered into as confidence improves.

During the height of the pandemic, both landlords and tenants alike were afflicted by difficult lockdowns and restrictions. Disputes over burdensome rental obligations were often the final straw in an impossible trading environment.

If you are considering entering a retail/commercial lease, either as a tenant or landlord, we suggest the following tips.
 

Tips for Tenants

There continues to be uncertainty in the economy, especially as the cost of living rises. Accordingly, flexibility is the key to ensuring that tenants can manage and adapt to any unforeseen issues (such as another lockdown, touch wood) or simply when one’s business plan does not come to fruition.

We recommend that tenants seek a short first term (e.g., one to two years) so that if conditions deteriorate, they are not locked into long-term obligations, giving them the option to walk away from the lease with decreased loss.

Similarly, short options are also a wise idea. Special conditions, such as those dealing with any future pandemic, may have been concerned crazy three years ago but now they are recommended.

Guarantor obligations can often be an additional concern. In some cases, it may be worthwhile to offer landlords an increased security deposit rather than provide a personal guarantee.
 

Tips for Landlords

Now more than ever, it is important for landlords to do their due diligence on potential tenants and consider the nature of the tenants’ business and how it may be impacted by the current climate. Furthermore, depending on the area of town or suburb, other area specific concerns may apply.

Landlords should ensure that an appropriate tenant is selected for the leased premises and to be prepared for the worst-case scenario.

In many cases, seeking enforcement of the tenant’s rental obligations is neither cost-effective nor likely to be successful. A healthy security deposit, an appropriate tenant candidate and maintaining a good working relationship with the tenant are three key ways of avoiding an unsuccessful lease.

If you require advice on entering a retail/commercial lease, please contact Will Elder today on 03 9480 1155.

Will Elder

Will Elder

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.