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What to look out for in a property leasing transaction?

Lindsay McGregor, Avant Law - Partner, Head of Property

A lease of property is a right to exclusively occupy all or part of a building for a fixed period of time. You may need to enter into a lease of premises for your practice. Alternatively, you may wish to let or sublet premises to host complementary services such as a chemist, physiotherapist or pathology lab.

Who is who?

The owner of the building or shop is known as the landlord or lessor.  

The doctor or company actually taking the lease is called the tenant or lessee.  

The space being let is known as the premises.  

In a subleasing arrangement, the tenant becomes the sub-lessor and the further tenant the sub-lessee.

Location, location, location

The first stage in a lease transaction is locating desirable premises. When looking for premises, you will need to consider the zoning to ensure you are able to carry out the intended use.

Who will be your neighbours? Are there complementary businesses in the surrounds? Also consider the need for exclusivity to avoid a competitor being introduced.

Is there sufficient security? What are your customer parking requirements?  

Reaching an agreement

Once suitable premises have been located the key terms of the lease will need to be agreed.  

You should be given a number of documents, which you should carefully review before you sign and return anything. It is at this stage you may wish to reach out and discuss the agreement with us.

  • The document that will record the agreed lease terms is called a lease proposal or heads of agreement. Any heads of agreement or lease proposal that you enter into should be non-binding unless you have sought advice from us first.
  • If your desired premises are in a retail shopping centre or caught by the relevant retail leases legislation in your particular state or territory, the landlord has additional obligations to provide you with a lessee disclosure statement and generally a copy of the landlord’s proposed form of lease.

Key terms to consider

When reviewing the heads of Agreement and the Lease we recommended you carefully consider upfront and hidden costs.  Somethings to look out for include:

  • How long will you need the lease for? Do you want a right to extend the term further if things go well or do you need aright to exit if things do not go to plan?
  • What fit out or construction works need to be done, by whom and by when? Will they be complete in time to open? What is the lead time for obtaining equipment?
  • What costs will be incurred? What is the rent? Who is responsible for paying outgoings, that is, the other expenses the landlord might incur from owning the premises. These could include land tax, insurance costs, repairs and maintenance, gardening etc. Depending on the type of lease you might agree to pay these costs, or you might pay only an amount for rent and the landlord would be responsible for the other costs. Be sure to review these costs carefully in the disclosure statement.
  • What security is required? Do you need to provide a bank guarantee? What will your bank charge for this? Often you may be required to deposit the amount guaranteed in a term deposit with the bank. Avoid agreeing to a personal guarantee in favour of the landlord.
  • What are the assignment and sub letting requirements? In the future you may wish to sell the business or sublet a part of the premises. This should not be prohibited and should not incur significant costs.
  • Are there any afterhours costs or requirements? For example, will your patients need access to a car park or common areas that may be locked once the building closes for the day?
  • Can the Landlord terminate the Lease under any relocation, demolition or redevelopment clauses? This could be costly to your business as you may be required to move.
  • What are your obligations at the end of the lease? This is normally called ‘make good’ and you may be required to reinstate the premises to their original condition or to a bare shell when your lease expires. This can also be a costly process.
  • Are you being provided with any lease incentives? Often a landlord will assist in providing you with a contribution to your fitout or a reduction of rent for a period of time.

We can help you

If you have any questions, or would like more information about how we can assist you or your practice, please call 1800 867 113, or to organise a confidential discussion at a time that suits you, please click here 

About the author

Lindsay McGregor

Lindsay McGregor is a lawyer and the Head of Property in our Avant Law team. He has been working in property related matters for over 20 years. He was previously a partner at a highly regarded national firm and has considerable experience in property transactions across Australia. He has previously acted for some of the country’s biggest property investors and developers and can use this experience to your advantage.

Disclaimers

The information in this article does not constitute legal advice or other professional advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of this content. The information in this article is current to 15 July 2022.  Legal services are provided by Avant Law.  Liability limited by a scheme approved under Professional Standards Legislation. Legal practitioners employed by Avant Law Pty Limited are members of the scheme. © Avant Mutual Group Limited 2024

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