Everything You Need To Know About Commercial Lease Agreements in SA
When renting commercial property, it is vital for both parties (landlords and tenants) to understand the agreement that they are entering into and the rights and obligations that they have.
These rights and responsibilities are defined in a commercial lease agreement – a legally binding document which outlines the terms between both parties.
In this article, we cover common commercial lease pitfalls, how a Commercial Lawyer can help you, and some frequently asked questions.
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Pitfall #1: Not being aware of how an option to renew can be exercised
If the Lease contains a right of renewal both parties need to be aware of how and when this option can be exercised and note these dates in their calendars as a prompt for when they should begin the renewal process.
It is imperative that tenants, in particular, are aware of what the lease provides in relation to when and how the option can be exercised.
If the option is not exercised in accordance with the Lease the landlord may not be obliged to renew the agreement.
Pitfall #2: Not properly reviewing the repairs and maintenance conditions
The repairs and maintenance clause are the source of many disputes between the landlord and tenant.
Both parties should properly review the clause within the commercial lease agreement and ensure that it clearly sets out who is responsible for certain maintenance or repair obligations.
For example landlords are often not required to maintain the structure of the Leased premises. However tenants are required to repair and maintain its condition.
As a tip, it is also advised that both the landlord and tenant jointly inspect the premises and take note and photograph or video any pre-existing damage before the lease commences as most disputes regarding damage to the premises arise even before the lease has begun.
Pitfall #3: Not properly reviewing the rent clause in the lease
The initial rent is negotiated between the tenant and the landlord. Obviously you should do your own research as to what is a fair market rent for the premises you are leasing.
With the rent review, however, most leases are reviewed on the anniversary of the commencement date and will stipulate the method that can be used for rent review.
Some of these methods include:
- Market review
- A set percentage increase
- Consumer Price Index (CPI)
- Any other agreed method.
The types of review can vary over the life of the lease but should be detailed and agreed on within the agreement.
How a Commercial or Lease Lawyer Can Help You
With a commercial lease it is imperative that you never sign the commercial lease agreement without understanding all of its terms and conditions. If you end up doing so, you may face serious legal and financial problems in the future.
There are various laws for example the Retail and Commercial Leases Act 1995 (formerly Retail Shop Leases Act 1995) and the Landlord and Tenant Act that apply to commercial leases.
Therefore there are numerous factors to take into consideration with a commercial lease agreement, it is worth asking a Commercial Lawyer to assist you with reviewing, drafting or negotiating the terms of a commercial lease.
In addition, commercial or lease lawyers will also provide you with practical advice that can protect your interests while achieving your goals and objectives.
Frequently Asked Questions
Is there some information that I can refer to pertaining to commercial leasing in South Australia?
Yes, you can refer to the Retail and Commercial Leasing Guide. This guide has the amendments passed by the South Australian Parliament in December 2019. It contains information about your rights and obligations and governs most commercial leases in South Australia where rent does not exceed $400,000.
Please be aware that special laws apply if you are going to lease a premises in a shopping centre.
Is there a minimum lease term?
Yes, there is a minimum lease term of 5 years, including any options to renew. There are, however, some exceptions to this requirement such as if the lease contains a Certified Exclusionary Clause or is a short- fixed term lease.
What is the lease documentation required in South Australia?
The landlord should be providing the tenant with the following documentation:
- A draft of the lease which contains all of the terms and conditions and a plan of the leased premises.
- The most recent version of the Retail and Commercial Lease Guide.
- A Disclosure Statement.
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