Negotiating a valid commercial lease – things you need to know
Solicitor DENNIS GROGAN presents an insight of the main areas you should be aware of with commercial leases.
IN THE BEGINNING …
The process of negotiating a commercial lease will usually start with a prospective tenant (client) looking for a vacant commercial premises and will involve general discussions usually between the client and leasing agent around the rental and outgoings and the amount of parking.
The lawyer will then receive instructions from his client to act for him and at this stage to ascertain whether there is a draft Heads Of Agreement (HOA). This document will usually be prepared by the leasing agent and will probably have a provision for the lessor’s cost to be paid by the tenant with the usual clause that the HOA is subject to and conditional upon final lease documentation being approved by the lessor’s solicitors.
At this stage there is really no agreement. Things need to be done fairly quickly as the tenant (client) will be spending time and money talking to fit-out people and banks. In our opinion the matter cannot proceed further without seeing the standard lease form from the solicitors for the lessor. This is usually met with objections but in our opinion there is no sense doing substantial work and negotiations and paying a month’s rental to the leasing agents thinking things are moving along OK and then you receive a draft lease which has all kinds of terms which are not acceptable.
AS THINGS PROGRESS …
Accordingly, at this stage your lawyer should insist upon a copy of the lessor’s solicitor’s standard lease and go through same with the client and discuss any alterations that may need to be done and talk with the solicitors for the lessor so that we have a pretty good idea as to what will be in the final lease documentation and such amendments can be reflected in a further version of the HOA.
Your lawyer then needs to request the solicitors for the lessor to delete the clause in the HOA saying is subject to lease documentation and providing a clause to the effect that the HOA is only subject to the lease being prepared by the solicitors for the lessor in the standard form and any amendments to the standard lease have to be noted in the HOA.
You are then in a position to sign the HOA and the agent to sign on behalf of the lessor and you can then be advised to then push ahead with plans and finance applications knowing that the stage has been reached where there is a document signed by or on behalf of the lessor which can be enforced.
The formal lease documentation is then received from the solicitors for the lessor and once you sign same that is only an offer and the lessor still has to accept the terms even though the lease comes from their lawyers.
IN CONCLUSION …
With large companies that can take some time as it usually requires a board meeting and board members to be present to approve the final documentation. Unfortunately that process does not happen very quickly and the lessor’s lawyers just need to be constantly pestered until that occurs.
We, as a matter of cause, notify and diarise our client as to any date for exercising options that notification requiring acknowledgement by return.
The legal work and expertise in relation to the lease procedure from start to finish is demanding and is always handled by a partner of the firm.
Dennis Grogan of Grogan & Webb has been a practicing solicitor for over 30 years, based on the North Shore of Sydney. He is an expert in business, commercial, personal and property law.