While many businesses can now be run from a home office there comes a time when you need to expand, expand your reach, your wealth and your operating space. When that time comes you’ll need to consider the best commercial lease option for your next big step.
1. When is a lease considered commercial?
The lease of a property is commercial when it refers to office space, retail shops, warehouses, workshops, work yards, industrial units, storage sheds, and any other non-residential property types.
2. How long is a commercial lease term?
The length of a commercial lease is made up between the owner and the tenant, negotiated depending on individual needs. A new business may want the safety of a one-year lease, while an established business owner may feel confident with a three-year lease.
While each situation is unique you can expect most terms to be fixed for a longer length than a residential property (i.e. 3-5 years). A longer lease is considered favourable to the business as it allows you time to recoup your expenses. If you want the best of both worlds you can agree to a one-year lease with an option to extend a further two years, then two years after that. This five-year total looks more attractive to the owner while giving you stability and safety.
3. Is there an option to renew my lease after the term is up?
There is no obligation for the owner to continue leasing the property to you after the term is completed. You will need to include a written option to renew in your contract so that you get the chance to enter into a new lease before the owner is allowed to offer the property to anyone else.
4. Do I need to pay Stamp Duty on my lease?
Since 2008 stamp duty payments were abolished on new commercial leases in NSW (and other sates) to encourage new business.
You will not need to pay stamp duty when you sign a new lease, however, you will need to pay stamp duty if you do not see your lease term through.
Stamp duty is required if you terminate the lease early or if you transfer the lease to someone else. The amount of tax is determined by the payment you receive for the transfer. If there is no payment received you will need to pay anywhere between $10 and $30 on the transfer paperwork.
5. Can my landlord increase the rent price?
Yes. During your lease term the Rent Review terms will be included (and restricted), however, after your lease is over and you want to renew there may be new rental amounts. You can establish a market rent review before you agree to a new lease term. Try to avoid percentage rent, where rent increases are based on percentage of turnover.
6. Can I lease, or sublease if I want to?
Usually commercial leases have detailed terms permitting what the property can be used for and who can use it. Because of this it is unlikely that you will be able to sublease without first obtaining written permission from your landlord.
If there are no terms in the lease that specifically restrict or require permission for subletting or leasing the property and the additional business operates within the permissions assigned in the lease and with the council then you are able to lease the property.
7. Do I need to pay a Security Deposit?
A security deposit works the same way as a rental bond in residential properties.
The cost is usually two months rent, which is paid to your landlord to ensure the tenant will make monthly payments. Typically this is lodged to the Director-General of the Department of State and Regional Development, however, your landlord is free to do whatever they want with it, including gain income from interest or shares, as long as they return it back to you in full at the conclusion of your lease as per the terms. Be sure to keep a record of this payment as proof of your entitled return.
8. Do I need to register my commercial property lease?
A lease needs to be registered if it is longer than three years, including agreed extensions, for example, if your initial lease is one year with an agreement to lease again for two years and another two years then that lease needs to be registered with the Land and Property Information.
To register the lease you must first get an agreement to do so with your landlord and also make sure the lease is compliant. It is the landlord’s responsibility to submit the documents, however, the tenant is usually responsible for paying the registration fee.
The original registered commercial lease will stay with the landlord although you can request a copy for your records.
9. Can a new owner kick me out?
No. Should the property change hands while you are renting your current lease agreement, as well as any options to renew, will be honoured by the new owner. This will include the current payment amounts and terms. You can make negotiations for a new lease if that is mutually beneficial to both parties.
Make sure all your agreements with the previous landlord are in writing.