Reviewing commercial leases: An annual check-up for your business
Monday, January 11, 2016/
It’s the new year and for a small business this is often a time for reviewing, planning and goal-setting.
As business owners we tend to focus our energy on the parts of our business that we believe can be changed or altered with the least amount of impact to our business and ourselves. What worked well last year? What can we do better this year? And most importantly, how can we save money?
Something that business owners tend to forget to review annually is their commercial property lease.
Upon signing a lease and moving into the property, a ‘let and forget’ attitude can take over, and a lease usually isn’t looked at again until it comes up for renewal in three to five years.
However, it is important to treat a lease like any other commercial business contract and review it annually to see if there are any ways it can be improved.
You might ask how this can be done as you’re ‘locked in’ to your lease for the duration that you have signed up for but it’s more about being aware of your rights rather than renegotiating your lease.
Here is the Annual Lease Check-Up that all commercial property tenants should be doing:
Is your lease still current?
This one might seem like a silly question, but it is easy to get so caught up in the day-to-day running of your business that a lease expiry can come and go without you realising.
If your lease has expired you should put immediate steps in place to ensure that you have security of tenure over your business premises. If your lease has expired, a landlord only needs to provide you with one month’s notice to vacate the property. Could you move your business that quickly?
Is the lease coming up for expiry in the next 12 months?
If so, you should be looking at your options now including possible relocation or lease renewal. Leaving this to the last minute can be an expensive mistake for any business?
Are you paying too much for your outgoings?
It is important that any outgoings you are paying for as a tenant are in line with what is stated in the lease, what can be on-charged from the landlord under the relevant legislation and, of course, what is actually being paid for versus what is being on-charged to you.
You should audit your outgoings annually or have someone other than the landlord or their agent audit the outgoings for you. There are often opportunities for cost savings when you review your commercial property outgoings.
Is the property still suitable for your requirements?
Perhaps you expanded so much last year that staff are working from bean bags with MacBooks on their lap, or maybe the property is now too big for your requirements.
Consider what your current needs are and what they will be for the next 12 months. If you think it might be time to move, start putting plans in place now and look at your options for exiting your lease early, subleasing or assigning your lease.
Are you paying too much rent?
Regularly checking what market rental rates are for your leased property will give you a distinct advantage when it comes time to renegotiate your lease. It can also assist with crucial decision making for your property. If market rental rates are below what you’re paying perhaps you should consider an early lease renewal with your landlord in exchange for a rental reduction. This is not unheard of, and a lot of landlords would prefer to have a happy, long-term tenant paying less rent rather than a short-term rental gain.
Now is also a good time to have a discussion with your landlord about their plans for the property. Understanding what their motivators are can assist you with any future lease negotiations.
Amanda Anderson is the founder and director at The Tenant Company, which provides independent tenant representation services for small businesses seeking retail, commercial or Industrial real estate.