Your stress-free guide to leasing commercial property

By Gerry Gleeson August 12, 2019

Thinking about leasing a shop, office or factory and not sure what the process is?

Here are the critical steps which will hopefully assist you in achieving your goal of securing the right leasing package for the right property.

  1. Assessing your needs
  2. Finding properties
  3. Inspecting
  4. Making an offer
  5. Acceptance and deposit
  6. Leases and Disclosure statements
  7. Before lease commencement
  8. Key handover
  9. Grand opening.
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1. Assessing your needs

Firstly you need to determine your key requirements based around the following factors:

  1. Location – where are your customers & staff based? Will they need parking? Access to public transport? Do you need main road exposure? Do you need to be surrounded by other particular businesses, eg medical centres?
  2. Size – how much space do you need? Most commercial premises are advertised in square metres. Remember to consider storage needs, kitchens, toilets etc.
  3. Budget - How much rent can you afford to pay each month? Most commercial leases require monthly in advance rental payments.
  4. Do you need certain features such as NBN, air conditioning, grease traps, 3 phase power, disabled access etc?
  5. Timing - are you seeking a short term or long term Lease? Think about how many years you can commit to first off.

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2. How do I find available properties?

The best place to start yourself is by searching on the major commercial property portals such as:

https://www.realcommercial.com.au/

https://www.commercialrealestate.com.au/

https://www.commercialview.com.au/

Most, if not all, commercial agents advertise their listings on these sites, so they offer a good overall picture of what’s available on the market to lease.

From this search, you may note that a number of agents are particularly active in your area of interest. It would be worthwhile contacting them directly with your requirements and have them refer available properties.

If you have a specific location requirement, it would also be worthwhile going for a drive around your preferred area and keep an eye out for any For Lease signboards.

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3. Arrange an inspection

Before inspecting with the agent, it is often a good idea to have spoken to them specifically about your requirements and whether that property is going to fit in with your budget, lease term, availability timing and suit your specific needs. Ask for floor plans and review the address using satellite imagery on google maps.

At the inspection ascertain;

  • Does the property require any capital works (such as repairs & maintenance) and is the Landlord willing to do them?
  • Will you need to complete any fit out works? You may need to come back with a consultant to price this.
  • Are there any Council or other permit issues?
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4. Making an offer

If the property is suitable, you can make an initial offer to the agent based on some basic key terms including:

  • Tenant name & proposed use
  • Commencing rental
  • Lease start date
  • Lease term – initial term plus any further terms (options)

This can be done either verbally or by email. The agent will indicate whether your proposal would likely be considered by the Landlord. Some negotiation may be required at this point. Once basic terms are very generally agreed, the agent will provide you with a letter of offer also known as a Heads of Agreement (H.O.A.) covering the broad terms.

If the Lease is a Retail Lease as defined by the Retail Leases Act 2003 they will also provide a copy of the proposed Lease and tenant fact sheet which you can find here: https://www.vsbc.vic.gov.au/wp-content/uploads/2018/10/vsbc-retail-leases-brochure.pdf. This is useful even if you are not a retail tenant.

Carefully review these documents and make sure you understand them. You may wish to have this reviewed by your lawyer.

At this point the agent will also typically ask you to provide references and information on your business’ financial performance or backing so they can run background and credit checks.

5. Acceptance of the offer and payment of a deposit

To accept the offer you will need to sign the HOA and pay the deposit, which is typically equivalent to 2 months rent including GST.

If the Lease proceeds, this deposit is applied as the first 2 months rent in advance.

Make sure you are provided with a copy of the HOA countersigned by the Landlord for your records. Once the HOA is fully signed, no further negotiation of terms should occur.

If you later withdraw from your offer, the Landlord may be entitled to deduct any legal fees and other expenses incurred in connection with the offer from the deposit held. If the Landlord withdraws from the offer, they must return the deposit back to you in full.

6. Leases and Disclosure Statements

The Lease and Disclosure Statement will be prepared on the basis of the fully signed HOA and should typically take no more than 2 weeks to prepare. The Disclosure Statement (if a Retail Lease) must be provided to you at least 7 days prior to Lease commencement.

Review the documents very carefully before signing. You may wish to have them reviewed by your lawyer. Once again, make sure you understand them and if not seek legal advice.

7. Before lease commencement

During this time you need to attend to the following:

  1. Sign, date and return the Leases and Disclosure Statement.
  2. Pay the Security Deposit and/or provide the Bank Guarantee. This Security Deposit is separate to the initial deposit paid upon signing the HOA. The Security Deposit is held for the life of your tenancy and, if all is well with the premises at the end of your Lease, it comes back to you.
  3. Apply for any permits or owners corporation approval needed.
  4. Arrange to connect services such as gas, power and internet.
  5. Book in your fit-out and signage contractors.
  6. Book any removalists.
  7. Make sure you are provided with a copy of the Lease countersigned by the Landlord for your records.
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8. Key handover

Keys to the premises will be handed to you on the commencement day of the Lease provided you have signed the Lease and Disclosure Statement and provided the Security Deposit/Bank Guarantee.

Make sure you record the keys, pass cards and any remotes for doors including car parks, air conditioners or security alarms. Whilst it is recommended that you change the locks for your own security, make sure you ask in case they are restricted keys.

A good managing agent will provide you with a thorough condition report supported by photos at handover. If not, you should take photographs as a record of the condition of the premises at Lease commencement. Make sure they are clear and capture the entire premises.

9. Grand opening

Make sure you start with some fanfare. Celebrate the opening of your business with friends and neighbours and on social media. You have worked hard to get to this point and everyone involved on the journey will want to wish you well. Good luck!

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Gerry Gleeson

Written by Gerry Gleeson

After a successful career as a stockbroking analyst and manager of a private investment business, a long time fascination with property and a desire to try something new led Gerry into the property management sector.

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