Commercial lease: the clauses to read before signing

A lease of business premises is a different animal from a residential one, because the tenant puts money into the place: the fit-out, the key money, and a customer base tied to the location. When the lease ends sooner than expected, what is lost is not the rent already paid but the whole investment.

The disputes that actually arise are rarely about the rent. They are about the things both sides thought were settled: renewal, rent increases, the return of the deposit, and who owns what the tenant built into the premises. Those are the clauses to read before signing, because afterwards any change needs the other side to agree.

What should you check before signing a commercial lease?

• Term and registration. A lease agreed for more than three years but not registered with the competent official is enforceable for three years only, whatever the document says. This single point causes the largest losses in long leases.
• Renewal. Distinguish a promise that actually binds the landlord from wording that merely says the tenant will be considered first, which binds nobody. Fix the method for setting the renewal rent as well.
• Rent increases. State when, by how much and on what base. Wording that lets the landlord increase the rent as it sees fit is no cap at all.
• The deposit. State the amount, what may be deducted, and the date for return after the premises are handed back. Many leases set out the deductions in detail and never fix a date.
• What the tenant installs, both fit-out and services: whether it is removed, left behind, or paid for at the end. Left unsaid, it usually becomes the landlord's for nothing.
• Early termination on both sides, and what follows — particularly what the tenant must pay to get out early.
• Subletting and assignment. This matters most if the business may be sold later, because the buyer needs the premises with it.
• The outgoings that come with the place: service charges, utilities, land and building tax, and insurance, and which side carries them.

What does the wording in a lease actually mean?

• "The landlord will give the existing tenant first consideration" means there is no right of renewal. It is a courtesy, not an obligation that can be enforced.
• "Rent may be adjusted in line with market conditions" means it can be adjusted without limit. Replace it with a figure or a percentage per term.
• "The tenant accepts the premises as they are" makes later defects the tenant's problem. Attach a condition report with photographs taken on the day of handover.
• "All fixtures shall become the property of the landlord" means the fit-out is neither recoverable nor removable.
• "The tenant shall return the premises in their original condition" means stripping out at the tenant's cost — which contradicts the clause above. A lease containing both is one the tenant loses either way.
• "The landlord reserves the right to enter at any time" should become reasonable notice during business hours, except in an emergency.

Which clauses should you refuse?

• A landlord who can terminate at any time on short notice while the tenant is bound for the full term.
• Heavy penalties on the tenant for default, with no consequence at all when the landlord breaches.
• A right for the landlord to retake the premises and remove the tenant's property without going to court.
• A blanket waiver of the tenant's claims in advance, including claims arising from the landlord's own default.
• An obligation to buy goods or services from the landlord at prices the landlord sets.

What does the law give you if the lease is silent?

• A lease of immovable property needs written evidence to be enforceable, and must be registered if it runs for more than three years; otherwise it is enforceable for three years only.
• A lease cannot exceed thirty years. A longer term is reduced to thirty, and the parties may then agree a further term of up to thirty years.
• If the owner transfers the building during the lease, the transferee takes over the rights and duties under a lease that binds. A registered lease is what protects the tenant when the property changes hands.
• The tenant may not sublet or assign the lease without the landlord's consent.
• Ordinary minor repairs are the tenant's responsibility; major repairs necessary for the use of the property are the landlord's.
• Where rent is in arrears, the landlord must give notice to pay within a period of not less than fifteen days before terminating.
• A lease is in principle personal to the tenant, so where an individual tenant dies the lease comes to an end. A family business should consider taking the lease in the name of a company instead.

Checklist: what to confirm before you sign

• Check the title document to confirm the landlord owns the property, and the entries on the back for mortgages and other encumbrances.
• If the building is mortgaged, ask whether the mortgagee bank consents to the lease. On enforcement and sale by auction the tenant can lose the premises.
• Check that the signatory can bind the owner. For a company, a certificate issued within the last six months.
• Check that the intended business is permitted at that address under the zoning and the existing permits.
• Book the registration at the Land Office if the term exceeds three years.
• Photograph the premises on handover and note the water and electricity meter readings; attach them to the lease, signed by both sides.
• Pay the deposit and every rent instalment through a bank account and keep the records.
• Initial every page and keep a complete counterpart each.

This is the general position, not advice on your lease, and it is not a template to use on your own. What matters depends on the business, the location and the money going into the fit-out. Send the draft for review before signing.