Signing a business premises lease

Tenancy costs tend to be one of the main overheads for small businesses. Disputes between landlords and tenants are common and often arise from small business owners not seeking advice or not understanding the significant impacts a lease can have on the financial viability of their business. Knowing who you are dealing with and what else is available before signing a business lease can help to avoid letting your heart rule your head in this critical business decision.

Before you sign a lease, you need to be confident that you understand and can meet all the terms and conditions. To find out if the lease is suitable for you, and to avoid expensive misunderstandings that could cost you money and potentially your business, consider these questions and discuss the answers with your solicitor and financial adviser.

Lessor or lessors agent

  • Does your contract say a lot but actually tells you very little?
  • Are you left wondering what it's all about?
  • Do you get the feeling that information is being withheld?
  • Are you immediately pressured to sign on the spot?
  • Is the discussion relaxed – no pressure to sign – with time for you to properly consider things and take appropriate advice?

Lease

  • Who pays the legal costs for establishing the lease?
  • When does the lease start? What time period does it cover?
  • Will the lease period give you time to make enough profit to get a reasonable return on your investment?
  • Can both parties engage a specialist retail valuer if there is a dispute over market rent?

Rent

  • What is the rent? Is it paid weekly, monthly or in advance?
  • Is a deposit or other payment required?
  • How are rent increases worked out?
  • What happens if rent payments are late?

Options

  • Do you have an option to buy the premises?
  • Can you renew the lease? When, and for how long?
  • Can you end the lease before it expires? If so, what are the conditions?
  • Is subletting possible? If so, what are the conditions?
  • Can you transfer the lease? Are any expenses involved?

Expenses

  • Are there additional charges for outgoings such as rates, taxes, garbage, air conditioning or marketing? How are these charges worked out?
  • Have you considered expenses such as electricity, cleaning, repairs, maintenance and refitting?
  • Who is responsible for taking out the various types of insurance?

Restrictions

  • Are there restrictions on the type of business, its goods or trading hours?
  • When you leave the premises, can you remove fixtures, fittings or furnishings you have put in?
  • Will any lease terms affect the ongoing profitability of your business?

Maintenance

  • Does the lease require you to maintain the premises? At whose cost?
  • Can alterations or improvements be made to the premises by either party? Are there conditions?
  • Do you have to return the premises to pre-lease condition?

Assignee/assignor involvement

  • Has the assignor* got written approval for the assignment of the remainder of the lease?

*If you are buying a business and the seller has a lease as part of that business, they are known as the assignor. The assignor requires approval from the landlord for the assignment of the remainder of the lease to the purchaser of the business (assignee).

Also consider...

  • Last reviewed: 7 Jan 2021
  • Last updated: 1 Feb 2022