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Commercial Lease Essentials

Over the past few months we’ve been exploring Commercial Lease Essentials on our Facebook page – covering they key points on renewals, administration, provisions, and other aspects of a commercial lease document. Now that the series is finished, we’ve collected these points here for you to refer back to as needed.

What is a Commercial Lease?

A commercial lease is a legal contract between a landlord and a tenant for real estate. The lease is a formal and binding commitment that covers a set of obligations for both parties. The lease contains all the information and answers you could ask as either an owner or tenant, so it’s important to read and understand this document as it will be your handbook for the life of your lease term!

What is a Heads of Agreement?

A heads of agreement is the non-binding precursor document to a commercial lease. It outlines the key terms of a lease deal that reflects the commercial intent of the parties involved in the agreement.

Dealing with an expiring lease

Understanding the process around lease expiry is essential to the smooth and efficient managing of a commercial lease. We approach our tenants and landlords as early as possible before an upcoming lease expiry to understand the needs of both parties and to enable us to secure a renewal, or new tenancy, as required.

Sections of a Commercial Lease

A typical commercial lease is made up of a number of key elements and clauses: reference schedule (summary of all major terms and conditions), definitions of terms, parties involved, the legal premises being leased, lease term, building rules and regulations, tenant and landlord obligations, rent and information regarding rent reviews, fixed per cent increases, and outgoings, insurances, and lease security.

It is important to review each of these sections of the lease and do your due diligence before signing.

Renewing a Commercial Lease

Options are a renewal term that follows the expiration of the initial lease term. Options to renew are often included in commercial leases and tend to be favourable for the tenant. A notice period is given around three to six months prior to the expiration of the lease and the option can be taken to extend at that time, typically with the same terms as the initial period.

Commercial Lease Administration

This essential commercial lease tip is one for the property managers: it is crucial for a property manager to completely understand the lease so that we can assist both landlord and tenant during the lease term with their enquiries, questions, and any issues which may arise.

Understanding the lease and being aware of key dates means we can manage efficiently, ensure your tenants tenants are fulfilling their obligations, and that your commercial assets are protected.

Permitted Use of the Property

Commercial leases will outline the permitted use of the property in question. This explains what the premises can and cannot be used for, and typically the development application will have a general outline of these scenarios.

Property Condition Reports

Much like a residential lease, a commercial lease will include a condition report as part of the lease document package. This document is used to detail the condition of the property prior to the tenant taking occupancy and is used as a reference point for the state of the property for the duration of the lease.

Commercial Lease Holdover Provisions:

This is a provision within the lease that gives the tenant an option to hold over past the lease expiry date without entering into a new lease agreement. This is often conducted under the discretion of the landlord and may or may not be applicable for every lease circumstance.

 

Have a question about Commercial Leases not covered here? Feel free to reach out to us by phone on 1300 111 776 or by email info@purepm.com.au to see how we can help.

 

Resources: REINSW – Essentials of a Commercial Lease Webinar Article

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