Top 5 Tips Before Signing a Lease
Top 5 key things to consider
- Is this the right location?
- Can I get Council approval?
- Is there access for people with disabilities?
- Are the clauses and terms of the lease fair?
- What fit out works will I need to do?
When leasing a new premises there are some essential steps you should take to ensure you are making the best decision for yourself and your business. Commercial leases can be complicated and confusing, here we explain some of the jargon and suggest five key things to consider before you sign.
1. Is this the right location?
Researching the area will help you to determine whether this is a suitable location for your practice and if there is a need or gap in the market for your healthcare services. Look at the demographic profile of the local population – does this match the type of patient you are targeting? Investigate the level of competition from other healthcare providers – how will this shape your business? Find out if there are any new residential developments or infrastructure projects happening nearby – is this premises a good long term proposition? This type of research can help to ensure that the premises and business are in perfect synergy.
2. Can I get Council approval?
You may need to submit a Development Application so check early on that you can get approval from Council to run a medical practice from the premises. Councils have strict rules and guidelines you need to comply with and unfortunately every Council is different! A common mistake is to overlook the parking requirements. Most Councils have a minimum parking requirement for a healthcare facility, and the number of parking spaces required varies with the size of the property or number of consulting rooms. So do your own investigations or hire a professional, do not rely on the Real Estate Agent – they may not be aware of the specific requirements for your type of business.
3. Is there access for people with disabilities?
The Disability (Access to Premises - Buildings) Standards 2010 aim to achieve better access to buildings for people with a disability. It is not only good business sense to ensure more people have the opportunity to access your practice but it is also a statutory requirement. Most building works will trigger the need to comply with the Premises Standards so if there are any steps or your tenancy is over multiple levels, then a ramp or lift may need to be installed. This is particularly relevant if you are leasing a whole building as there is more responsibility on you as the lessee and these items can come with a high price tag.
4. Are the clauses and terms of the lease fair?
Commercial leases can be complicated, every premises is different and you need to ensure you have tailored lease terms that are suitable for you. Generally a lease is written in favour of the landlord, it is advisable to employ a professional to review your lease to detect any clauses/terms that may not be fair to you and need to be negotiated. Are you aware of the following?
- Rent (gross or net)
- Incentives
- Outgoings
- Options
- Rent Review
- Demolition Clause
- Landlord Responsibilities
- Make Good Provision
Rent
Rent is calculated differently for commercial versus retail properties and the difference can be substantial. Do your research to establish what the rent is for similar properties to ensure you are paying a fair market value. Clarify if the rent being quoted is ‘Gross’ (including outgoings) or ‘Net’ (excluding outgoings).
Incentives
Incentives are offered by landlords to entice tenants to their property, they may take the form of a rent free period, capital works or a cash contribution to your fit out. But if you don’t ask you don’t get!
Outgoings
Outgoings are the expenses involved in physically running the building, such as insurance; repairs & maintenance; management fees; cleaning; common area lighting/heating/power. These are charged to the tenant in addition to the Net Rent so it is important to know exactly what outgoings you will be liable for and how these costs are calculated to make sure they are reasonable.
Options
When negotiated correctly Options in your lease can provide flexibility for your business. An Option to Renew gives you the right to extend your occupancy at the end of the initial lease term for a specified period of time. Another type of Option you might consider is to secure additional space for future expansion.
Rent Reviews
Rent may be reviewed during your lease and adjusted in line with the Consumer Price Index (CPI) or market value. It’s a good idea to clarify how often your rent will be reviewed and how any adjustment will be calculated so you can budget for it in your projected cashflow.
Demolition Clause
A demolition clause enables your landlord to end your lease with six months’ written notice if they wish to demolish, renovate or repair the building.
Landlord Responsibilities
Having an understanding of who is responsible for major maintenance and repairs of the building can avoid costly surprises. For example, the air conditioning system can be costly to maintain, repair or upgrade. It’s good to check what condition this is in and whether there is a regular maintenance agreement in place to keep it running smoothly. And in the event it breaks down who is responsible for repair and within what timeframe.
Make Good Provision
This is the work that you will need to undertake at the end of the lease term to restore the tenancy back to the original condition before you occupied it. Disputes can be avoided if you prepare a schedule of condition prior to your fit out and attach this to the lease so you have something to refer back to later.
5. What fit out works will I need to do?
Every property is unique and will need a different amount of fit out works depending on its existing condition, how you want to layout your practice and the desired look. It is beneficial to get a quick sketch design done by an Architect to ensure you can fit the number of consult rooms you need to run a viable business. It is also useful to get an early indication of how much it would cost and how long it would take to build to ensure the fit out at this premises will be within your budget and time limitations.
