Commercial Lease negotiation tips and pitfalls

An owner of a retail store thought they had found a premises to rent that was too good to be true.  The rent seemed much lower than other spaces they had looked at and it had good parking outside the premises.

However once they progressed into negotiations about the Agreement to Lease it became clear that there were very high outgoings to pay on top of the rent and the landlord had plans to upgrade the building within the next two years so wanted a development clause including in the lease.

Below are some tips to make sure you go into lease negotiations fully informed and don’t get tripped up:

• Understand the market in terms of incentives and rent-free periods.  Commercial agents and valuers can help with this, but remember the agent works for the landlord.
• Consider the term (length of time) you need.  Longer initial terms provide certainty to both parties but if you are a new business you may consider a shorter term in case the business is not successful or you discover the premises are not appropriate for the business.
• If you want any maintenance items to be carried out by the landlord before the lease commences, include those in the Agreement to Lease.
• Look into NBS (earthquake) status and consider whether your business has any minimum requirements in this regard for health and safety of staff.
• Make sure you fill in the premises description, include any plans, and fill in the Premises Condition Report as soon as possible.
• Be clear about who is paying for fit out, the timeframe for completing it and what happens with regard to fit out when you leave/terminate the lease.
• Get agreement upfront from the landlord to any custom signage your business will be putting on the building.
• Understand and negotiate make good/reinstatement requirements (eg: some bespoke leases, which are not based on the standard Law Association of New Zealand lease, require carpet replacement or a full repaint of interior at the end of a lease).
• Consider any known initiatives being put forward by local council in the area, or new developments being built, to understand the effect on parking and access for customers.
• Make sure you understand if it is a gross lease (including outgoings) or net lease (outgoings paid by you separately, in addition to the rent) that you are negotiating. 
• Look closely at the outgoings, especially if a net lease and ask for a summary of these from the preceding year.
• Rent will be advertised on a per square metre basis so you need to understand from the agent upfront how that is split between outgoings and base rent, if relevant, as otherwise you may not be comparing apples with apples.
• Use the plans provided to make sure the area held out as available to you is actually all useable in the way you plan. If in doubt get a check done by a suitable professional.

It is vital to fully understand your options when negotiating a commercial lease.  Legal advice from a commercial lawyer will help ensure you are protected as much as possible.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.