What to look out for when negotiating a lease?

In negotiating a lease agreement, lots of terms are hidden in the fine print which significantly affect your rights and obligations so you must read the proposed agreement carefully. Not sure what’s important? Here are some key points to look out for:

  • Key Terms of the Lease: This is important as it reflects the agreement reached and the intentions of both parties
    • Term of the lease
    • Rent and expenses
    • Rights and obligations of both tenant and landlord
    • Breach of lease and termination of contract
  • Net vs Gross Lease:A net lease is where the tenant pays rent plus some or all of the landlord’s expenses (including council rates and utility bills). Whereas, a gross lease already accounts for the expenses in the agreed rental amount. Tenants typically favour gross leases for predictable costs, as only the set monthly rent must be paid. In contrast, landlords prefer net leases which allow for full expense recovery, regardless of usage fluctuations or rate variations.
  • Land Tax: Retail leases often prevent landlords from passing on land tax to tenants, unlike commercial leases where this is negotiable. Tenants are reluctant to pay land tax, as opposed to council rates and utility bills where services are provided. Whereas, landlords try to get tenants to pay this to maximise yield.
  • Security:Tenants are often required by landlords to pay security deposits in the form of require cash bonds or bank guarantees from individuals, or personal guarantees from directors for companies. A 3 month bond is the typical amount.

How we can assist:

  • Compare the lease to any “Heads of Agreement” or “MOU”
  • Ensure that all clients are fully aware of their legal rights and obligations
  • Thoroughly review proposed leases when acting for tenants, to ensure that the requirements are reasonable and practical, and there is no unfair advantage to the landlord
  • Draft comprehensive leases when acting for landlords, to prioritse protection and limit potential disputes.

If you or someone you know wants more information or needs help or advice, please call 02 9150 6991 or email [email protected]

Important Disclaimer: This content contains general information for reference purposes only. If you are considering entering into or negotiating a lease agreement, as either a landlord or tenant, we strongly recommend obtaining independent legal advice tailored to your circumstances.