The cost of leasing retail premises

Under the Retail Leases Act the landlord (lessor) is responsible to pay the cost for the preparation of the Lease. If a tenant engages a legal advisor to go over the Lease, then the tenant (lessee) is responsible for his own advisor.

Tenants generally must pay for:-

installation of shop fittings;
removal of shop fittings at the termination of the Lease;
all expenses such as Rent, Outgoings, Promotion Levy, store room charge (if applicable) until the Lease expires or a new tenant is signed up.

Tenants must remember to exercise any Option under the Lease within the period set out in the Lease. This is usually within 3 – 6 months prior to the Lease Termination Date. Any failure to notify the landlord of exercise of Option within time, may lead to termination of the lease.

Legal fees associated with the Lease can be quite high, depending on the lawyer used and the complexity of the terms of the Lease. Retail Lease Solutions can go over the Lease, negotiate the final terms with the landlord before you seek your lawyers’ advice. This will save you a lot of money.

You must be prepared for contingencies which inevitably arise when undertaking fit out or seeking Council approval. One of the biggest mistakes tenants make is not having sufficient capital (cash or access to a loan) to sustain the lean months ahead while the business is getting established. Running out of money before the business really gets started is common. Tenants should allow for at least 6 months capital to cover salaries, legal expenses, Council fees, fit out cost, fixed overheads and cost of stock.

Upon exercise of Option there is usually a fair market review to occur. This means that an assessment is done by the landlord or his managing agent of what the comparable rents are being paid for similar size shops in the locality which are being used for a similar type of business. Sometimes this can be difficult to assess in which case the landlord makes a determination of his opinion. The tenant can either accept the determination, seek an Independent Valuation under the terms of the Lease or negotiate some middle ground. This is where a trainer negotiator like Retail Lease Solutions can act on your behalf and make an assessment of the rent and begin discussions with the landlord or his representative.

Outgoings payable by a tenant are common. They are a complex set of categories of expenses compiled by the landlord relating to the cost of administrating the building. Security, cleaning of common areas, electricity of common areas, repairs and maintenance, rates & taxes, pest treatment, window cleaning, insurance, garden maintenance, management fees are all what are termed Outgoings. Retail Lease Solutions can look into these expenses and determine whether they have been properly incurred. Some may even be negotiated out of the Lease before the Lease is entered into.

A Lease usually requires a Security Deposit to be paid (usually the equivalent to 3 months gross rent + GST). This is in fact a Bond which is either a Bank Guarantee or money paid which is then lodged with the Retail Tenancy Unit pending termination of the lease. Security Deposits can also be negotiated with the landlord before the Lease is entered into.

Tenants must have insurance. Public Liability and Plate Glass are the most common requested however you are obliged to also carry Workers Compensation. It is false economy to forego taking out insurance because if an incident occurs, not only may you lose the business but you may also be sued in damages.