A commercial lease is a legally binding contract that grants a tenant certain rights over a property for a specified period, subject to the terms set out in the lease. It is commonly used when leasing property primarily for business purposes.
The Importance of Understanding Your Lease Terms
Never sign a lease without fully understanding its terms and conditions. Failure to do so could lead to serious financial and legal problems down the line.
General Terms of a Commercial Lease
Typically, the landlord prepares a commercial lease, and the terms will generally favour them. Once signed, the tenant is obligated to comply with these terms during the lease period. The lease sets out the rights and responsibilities of both parties, including any options for extending the lease after the initial term.
Commercial leases often have longer terms than residential leases, providing tenants with greater security. This extended tenure can be attractive to potential buyers of a business, as they will inherit the lease upon purchasing.
Repairs & Maintenance: Who Is Responsible?
The lease will outline the obligations of both parties regarding the maintenance and repair of the premises.
In most commercial leases, the tenant is responsible for the upkeep of the rented premises, including walls, floors, and fixtures. However, this does not typically include repairs related to fair wear and tear, structural components, or capital expenditure, such as air conditioning or major building systems.
The landlord is usually responsible for maintaining and repairing the building’s structural elements, such as the roof, common areas, and lift systems.
Addressing Ambiguities: Air Conditioning, Cool-Rooms, and Fixtures
It is important to clearly define responsibilities in the lease regarding items like air-conditioning, cool-rooms, and other fixtures. These items may be used regularly by the tenant but can be expensive to repair. Ensure that responsibilities for their maintenance and repair are clearly written into the lease to avoid costly disagreements.
Avoiding Disputes: Common Scenarios in Commercial Leases
Most disputes between landlords and tenants arise from the interpretation of lease terms, especially regarding maintenance, repairs, and what constitutes “structural” elements.
- Structural Repairs: These typically involve major repairs to the building’s foundation, roof, or walls but do not extend to internal features such as partition walls or plumbing unless specifically defined.
- Repairs vs. Maintenance: A “repair” is generally an action required to fix something that has been damaged. For instance, if a tenant or their staff damages part of the premises, they are responsible for repairing it. On the other hand, “maintenance” involves actions that delay deterioration, such as regular servicing or cleaning.
Key Disputes and How to Resolve Them
Disputes can arise when there is ambiguity in the lease about who is responsible for repairs. For example, a tenant might argue that an item has simply worn out, while the landlord may claim that the tenant failed to maintain it properly. These disputes can be costly and time-consuming.
To prevent such issues, both parties should agree to a full inspection report of the premises before the tenant moves in. The report should be updated annually to reflect the property’s condition, providing a clear baseline for resolving potential disputes.
Reducing Disputes with a Well-Defined Lease
A commercial lease should clearly define the obligations and standards for repairs and maintenance to reduce the risk of misunderstandings and disputes. It is essential for both parties to seek legal advice to ensure that their interests are protected, as the terms in the lease can override legislation in some cases.
Need Legal Advice on Commercial Leases?
If you or someone you know needs more information or legal advice regarding a commercial lease, please contact us on (07) 4724 1152 or email [email protected].