Leasing Commercial Property

Leasing Commercial Property can provide greater flexibility for your business as it grows; also you are not locked into property ownership and the added cost of owning the property. Leasing commercial real estate for your business however can be a daunting process as there are plenty of variables to consider; be it for commercial offices, retail space, a warehouse or industrial building.

Commercial leases in New Zealand are governed by the Property Law Act 1952. With a lease the landlord is referred to as the "lessor" and the tenant is referred to as the "lessee".  Leases are either periodic or fixed-term leases. A periodic lease has no requirement for the beginning and end of the lease to be certain; instead, the lease ends on notice being given by either party. A fixed-term lease, on the other hand, requires a specified duration for the lease – a nominated start and end date.  There are a number of rights and obligations with leases including; The tenant (the lessee) must pay the rent when it is due and keep the premises in good repair. The landlord (the lessor) is entitled to enter the premises at all reasonable times to view the state of repair. It’s important to understand your obligations fully before signing any lease.

Finding the right premises to rent

Be very clear on your business’ needs and match these to the properties you look at. Search local newspapers, commercial properties for lease websites, talk to Commercial Property Agents and drive by areas you like to spot any ‘for lease’ signage.

Here are a few tips that will help you secure a space that best works for you:
Identify two or three options that work for you. This will pay off when it comes time to negotiate.
Do your homework. Read our article on How to choose the right office to lease.
Don't sign any lease until you know all of the expenses, including maintenance, rates, insurances etc. Lease terms tend to favour the landlord, so if need be, negotiate to improve on the terms offered.
Ask for a copy of the lease as soon as possible and read it. Commercial leases are all different; ensure the lease terms are suitable for your needs. Use a property lawyer to check the agreement out before signing.
Compare the details of the prospective properties. Include: leased space and rent, expenses (including maintenance), lease term required, subletting, break clauses, plus the pros-and-cons around location, parking, and contract conditions about each property.

Pay particular attention to:

Length of the Lease - Check the length of "term." A short-term commercial property lease gives you more flexibility if the needs of your business change.  Whereas a long-term property lease ensures that you'll have an affordable business space for a predictable period of time. Landlords are often willing to make more concessions on longer-term leases. If you have found an especially favorable location for a retail shop, restaurant or other business where location is key, deciding on the best lease term is more problematic. If your business does well, you'll want the right to stay on for an extended period. It maybe advantageous to negotiate a short-term initial lease, with one or more options for renewing later.

Rent and Rent Increases - Another consideration when leasing space is how much rent to pay. Check out rates for comparable spaces. If it appears too high, try asking for a reduction. If you cannot get a reduction, you may be able to get a few months of reduced rent to help the move? Landlords will usually include an annual increase to your rent in your lease terms. If the landlord insists on keeping the clause, try to get a cap on the amount of each year's increase. Look carefully at what the landlord pays for.

Tenant Improvements - If the space needs improvements, you may be able to get the landlord to agree to help meet the costs, especially if you are willing to sign a long-term lease.

Subleases and Assignments - It can be a good idea to ask for the right to sublease or assign your space. That way, if you need to move out, you'll be able to have another tenant take your space and pay the rent, without having to break the lease. Or you can sublease some of the space until you're ready to use it.

Once you have found your ideal space, examine the lease and use your lawyer to check it. Go through the terms and conditions, and question anything confusing. Understand your responsibilities, what happens with rent increases and maintenance costs in order to avoid any unpleasant surprises later. Remember, Leasing Commercial Property can provide you with greater flexibility for your business over buying a Commercial Property, but ensure you do your homework first.

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