What You Need To Know Before Signing A Lease
So you have decided to make a serious financial commitment and enter into a lease. Here are some tips on what you need to know before putting pen to paper.
Whether you are a small business owner or a first-time ‘renter’, signing a lease can be quite a daunting task particularly if you have to read through pages and pages of documentation before you make up your mind. There are many considerations you must make in order to avoid any unwanted surprises.
If you are looking for a residential or business premises, we can get you in touch with a property lawyer who can help provide legal guidance about your rights and obligations.
What Is A Lease?
A lease is a legally binding agreement between a landlord or lessor and a tenant or lessee. Generally, there are three types of leases you may encounter.
- Residential lease – It is an agreement where the tenant pays the landlord rent in exchange for residence in the landlord’s premises.
- Commercial lease – It is an agreement for the lease of commercial property, such as office space, warehouses and industrial sites. For more information check out our article Leasing a Business Premises – What You Need To Consider.
- Retail lease – It is an agreement for the lease of retail premises that are used for the sale or hire of goods or provision of services.
What Should I Look For?
Before you put your pen on paper, it is extremely important that you read the lease thoroughly because if you find there are terms you do not agree with or wish to change, you can negotiate with the landlord. Here are some tips you can use as a guide when reading your lease agreement.
1. The Description Of The Premises.
Caveat Emptor – Buyer Beware! Read the description of the property in the lease very carefully. There should be an estimate of the premises’ size and whether particular fittings are provided as part of it.
2. The Length Of Your Lease.
The length of a residential lease can vary from six months, 12 months or longer depending on what was negotiated with the landlord. In contrast, commercial and retail leases can be short-term or long-term. It can be five years or run up to 25 years. Be aware that a lease agreement can be for a fixed period of time with a specified end date or for an indefinite period. If it is the former, then the landlord may repossess the property for his own use, sell it, or rent it out to someone else. For commercial leases, pay attention to whether there is an option to renew clause.
3. Your Obligations To Pay Rent.
The amount of rent you must pay should be specified in the lease. If it is subject to review, then it should also be specified. A lease is a serious financial commitment and it is your duty to pay rent regularly. If you think you might struggle to pay your rent on time later in the future, perhaps it might be beneficial to consult a property lawyer who can look over the lease. This will save you a lot of time, money and anxiety. Ultimately, landlords are not obligated to reduce rent because of your personal circumstances or problems with your business.
4. Repairs and Maintenance.
Another tip is to look closely at whether you have to pay for outgoings, repairs, or maintenance of the premises, including fixtures and fittings. In a commercial lease, the tenant is typically responsible for repairs and maintenance to the property. However, structural issues and capital items (such as air conditioning, walls, etc) are the landlord’s responsibility.
With residential leases, be mindful of what the landlord expects you to do if the property has a pool or garden.
Outgoings are expenses relating to the shop, such as taxes, charges and fees. The lease should specify the amount of outgoings to be paid, who is responsible for payment and how they are to be paid. In a residential lease, the tenant pays both its own outgoings and the landlord’s outgoings. You need to understand these costs and make sure you can afford them.
6. Improvements and Alterations.
Check to see if the property contains the amenities you need. If you are planning to do building work or renovations on a commercial or retail premises, you should check with the local council to see if written consent is required to run your business. If you fail to do this you run the risk of not being able to operate your business.
You should make the same checks before you sign a residential lease. It is prudent to ask the landlord for written consent if you wish to add a fixture or make any alteration or addition to the premises. If you make these changes in the future without the landlord’s consent, you are potentially breaching the terms of your tenancy agreement.
7. Additional Terms.
Although most of the lease is made up of standard terms, are there any additional terms? Additional terms that make the tenant spend money not already mentioned in the lease may be illegal.
Keep an eye out for restrictive and ‘unfair’ terms that can prevent you from enjoying and using the property in a certain way. If you are unsure about an additional term, you can contact property lawyer or the NSW Government Fair Trading.
In commercial and retail leases there may be a provision requiring the tenant to take out a public liability policy in relation to the building or its contents that insures both the tenant and landlord. You should identify what requirements under the insurance policy you must adhere to.
The landlord or landlord’s agent may ask you for a form of security to protect the landlord against default. You should verify the amount of the security deposit. For commercial or retail leases, the security may be a cash bond, a bank guarantee or a third-party guarantee.
If you have any questions about signing a lease agreement, it is important to consult with a property lawyer who can help you understand what exactly you are agreeing to, and give you advice about the terms of the lease.
Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our largest online network of expert lawyers or any other legal needs.
Fiona is a Paralegal working in our content team which aims to provide free legal guides to facilitate public access to legal resources. With an interest in information, media, consumer and employment law, her primary focus is on how technology will affect the future of the legal industry.