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Lease audit toolkit: Tips for every stage of your commercial lease

Last updated:
Jan 15, 2024
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Commercial Real Estate

Author

Jared Kroeger
Jared Kroeger
Director

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Whether you're a seasoned business owner or a budding entrepreneur, the journey of leasing a commercial space is significant, and it's essential to know how to safeguard your interests throughout your lease term. 

In this article, we take you through a comprehensive checklist to help you conduct a quick health check at crucial points during your lease. Staying proactive and vigilant at each stage will help you avoid any unwelcome surprises and potential pitfalls along the way. So, let’s get started …

Jump to the section that applies to you: 

Pre-Lease

Your sqm

It’s important to check the square meter (sqm) figure written into your lease (sometimes found in the annexures) because it determines the amount of space you’re renting and, therefore, the cost of your lease.

In some cases, landlords rely on estimations, which can lead to problems down the road. So, be sure that the landlord has provided you with a survey plan that accurately reflects the correct Net Lettable Area (NLA), and be aware that it’s typically the landlord’s responsibility to cover 100% of these costs.

Annual increases

Annual increases are predetermined adjustments that are made to the rental payment each year, often based on factors such as inflation or changes in the market. Understanding this right from the start of your lease means you can plan ahead and keep your budget in check.

Condition report

It’s important to finalise the tenancy condition report prior to occupying the space, which will provide a clear baseline for the property's condition. This report will serve as a vital reference point for any landlord discussions down the track, such as maintenance and make good conversations.

Be sure that the handover condition of the tenancy accurately reflects what was agreed upon (e.g., the space is clean and tidy, redundant items have been removed, and landlord works have been completed in full).

Get documents in order 

In addition to the condition report, ensure you’re in possession of your duly executed and binding lease, along with any incentive deed. These documents will provide clarity throughout your lease period and act as a safety net during any disputes or misunderstandings that may arise. Having a hard and soft copy on file is recommended.

Handover date

Once the lease, bank guarantee and insurances are finalised, the landlord will typically organise a handover date with the incoming tenant. It’s important to make sure you’re in possession of all keys and swipe passes and that building rules are provided at this time.

First few months of occupation 

Check your rental invoice

Ensure all the details on the rental invoice, such as net rent, outgoings, car parking, and contact details, are listed correctly to maintain financial transparency and accountability. 

Survey plan

If the space has yet to be surveyed, make this a priority. A couple of sqm (+/-) can add up to be a nasty surprise once reconciled. 

Holding deposit

Double-check that your holding deposit has been released from the landlord’s leasing representative's trust account. These funds should be attributed to the first month’s rent or refunded back to you. This process can be painfully slow, so the agent might need multiple follow-ups.

Building directory board

Keep an eye on the building directory board (especially in the first couple of weeks) to ensure it accurately reflects your tenancy name and floor level.

Outgoings budget

Prior to your first anniversary, you should receive an outgoings budget or schedule from the landlord’s Agent or Property Manager outlining the outgoings cost for the upcoming year. By reviewing these charges, you can ensure that you're only paying for what you should be.

During your lease

Repairs and maintenance

It's important to stay on top of who's in charge of maintenance and repairs to avoid any costly surprises or landlord disagreements and to ensure your workplace stays safe, comfortable, and runs smoothly.

Reviewing invoices

When reviewing invoices, double-check that the cleaning and parking changes accurately reflect what’s been agreed upon and haven’t been increased without sufficient notice. You should also check that any contractors with access to your space have been vetted/approved.

Track critical dates

It’s recommended to set up a critical dates tracker that outlines key milestones associated with your lease (e.g., annual rent escalation dates, option notice period, lease expiry etc).

Review increases 

Check the calculation of your rental adjustments each year to verify that rental increases align with the agreed-upon terms.

Note early termination clauses

A well-negotiated lease may include an early termination clause outlining the conditions under which either the tenant or the landlord can end the lease prematurely. These clauses tend to be very specific, so it’s important that tenants understand the requirements and ramifications if either party intend to exercise them.

Monitor landlord obligations

Keep track of your landlord's obligations and whether they are holding up their end of the bargain (e.g., common area cleaning, quiet enjoyment, building disruption, security, accessibility etc.)

Dispute bank guarantee top-ups

Make sure you dispute any request from the landlord to top-up your bank guarantee if it hasn’t been agreed to prior. Note that it’s always recommended to initially remove/reject any provisions that allow the landlord to top up the bank guarantee annually in your initial lease negotiations. Fixing the amount on year 1 rent is advised.

Redecoration clause

A redecoration clause mandates that tenants conduct maintenance or upgrades within a specified timeframe to prevent the property from deteriorating and to maintain appeal. This clause typically outlines the schedule for redecoration (e.g. every five years) and the tenant's obligations, like repainting walls or replacing carpets. It's important for tenants to be aware of these responsibilities to ensure compliance and to uphold the property's overall condition.

Redevelopment clauses

A redevelopment clause (a.k.a demolition clause), empowers the landlord to end the lease if they plan to rebuild, refurbish or demolish the property. Noting and understanding these clauses is crucial for tenants as it allows them to anticipate potential disruptions, safeguard their rights, and plan for any necessary relocations or alterations.

Towards the end of your lease

Option to renew

When it comes to option periods, you’ll usually need to provide your landlords with written notice that you intend to exercise it 6 to 12 months before your lease ends. The timing will be written into your lease. So, mark the date in the calendar and don't leave it till the last minute.

Keep in mind that, in the current tenant-friendly market, exercising that option might not always be the best choice because it can tie your hands in negotiations and leave you with less-than-ideal terms.

Make good

Make good requirements are a tenant's obligation to restore the leased space to its original condition (or to a condition specified in the lease) at the end of the lease term. Knowing what it entails prior to lease expiry helps you plan and budget for the works needed, avoid any last-minute surprises, leave on good terms with your landlord and ensure your Bank Guarantee is returned promptly.

Holdover

A Holdover clause outlines the terms that come into play if you run out of time and your lease expires. Being aware of the implications of this clause ensures that you're prepared for the worst-case scenario and can plan ahead. Most holdover provisions stipulate that the lease will become a monthly lease and attract an increased rental rate.

Get in touch

Need a health check on your lease? It’s important to know what obligations you’re tied to and where opportunities exist for change and leverage. 

So, get in touch with the Tenant CS team. who can provide a complementary lease review and recommendations. Book a call today!

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