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Commercial Leases: What Are Your Rights and Obligations?

  • May 30, 2022

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Understanding your rights and responsibilities when it comes to a business lease is vital to ensure that the arrangement goes off without a hitch or a dispute arising. This is important whether you’re the owner of the property leasing it to a business or you’re the business owner who is leasing the property.

Each part in a business lease has obligations and responsibilities, as well as rights when they enter into these kinds of arrangements.

If you’re about to enter into a business lease arrangement, keep reading to make sure that you fully understand what you can expect.

First, what exactly is a business lease?

Business lease defined

Also known as a commercial lease, a business lease is a contract agreement where the owner of a property suitable for commercial purposes is leasing it to a tenant who intends to use the property to fulfill their business.

The aim of the business lease is to outline the responsibilities of the business leasing the property (the tenant) as well as provide them with information about what they can expect from the landlord (the person leasing the property to them). The lease should be easy to understand as the intention is to make sure everyone is on the same page when it comes to their rights and responsibilities.

The details included in the lease document will usually be the rent and fees required each month or payment period, how long the lease is, and any unique details about that property.

When it comes to leasing properties, both the tenants and landlords’ rights are protected by the Property Law Act, and retail businesses are also protect by the Retail Shop Leases Act too.

Below, we’ve outlined some of the key rights and responsibilities of the commercial tenants and landlords.

Your Obligations and Responsibilities in a Business Lease Arrangement

Commercial landlords

If you’re a commercial property owner or landlord involved in a business lease, there are a variety of requirements you must fulfill, these include:

  1.       Disclosure of information – prior to entering a new lease or renewing a lease agreement, the landlord must provide a disclosure statement that pertains to the property. This statement will include the essential lease information, including payments and lease terms, but also information about fit out requirements and restrictions and various other clauses.
  2.       Having a sinking fund – to ensure any maintenance and repairs are able to be performed when required, it’s important that the landlord has a sinking fund for the property. The sinking fund is required when monthly maintenance fees are paid by the lessee. If a commercial landlord has multiple properties with these maintenance fees, they do not need to have separate sinking funds accounts for each property, rather there can be one account.
  3.       Must pay compensation when required – if the property owner impacts the tenants ability to service their customers and perform any aspects of their business, they may be required to compensate the tenant for the disruption. There are many different ways a business’s operations can be disrupted including maintenance that requires the business to be closed, blocking of the business from a street level, and neglecting repairs and maintenance of the property.

Commercial tenants

If you’re the tenant of a commercial property, you have responsibilities that must be upheld. These should be outlined in your lease agreement and will likely include the following:

  1.       Your payment obligations – your lease agreement will stipulate arguably the most important piece of information, which is the fees and rent you’re required to pay for the property you are leasing. You may need to pay maintenance fees on top of your rental requirements, which will usually be put aside by the landlord and used for repairs and maintenance to keep the property in good condition. While you’ll need to pay rent on a weekly, fortnightly, monthly or annual basis, there may be scenarios where you won’t be required to pay rent. This is usually when damage has occurred to the property that has not been the fault of the tenant. Commonly, this will be damage caused by natural disasters.
  2.       How you are expected to care for the property – business lease arrangements tends to have more flexibility and freedom in what you can do to a property than residential leases, however, often there will be requirements where you may need to seek a landlord’s permission before going ahead and making changes to the property. You’ll also be expected to keep the premises clean and well maintained, with any major problems that require fixing to be seen to as soon as possible.
  3.       Insurance requirements – it is common for a commercial lease to also require the tenant to acquire insurance for their lease duration, the type or level of insurance required may differ based on the type of business you have, but it is important to understand that this is likely to be a requirement.

Understand your lease agreement with some legal help

Whether you’re new to business lease arrangements or you just want to make sure your rights are protected, you can always work with a civil litigation lawyer to ensure you’re in the best position possible. A lawyer can help you understand your rights and obligations, whether you’re a business owner entering into a lease or a commercial property owner reviewing your current agreement.

Make sure your rights are protected in your lease agreement today.