Leasing a business consideration is a crucial consideration for those thinking of buying or starting a business. A lease is a serious financial commitment as well as a legally binding contract. As an investor, before you sign any lease or lease associated documents, occupy that business premise, or pay deposits and other related expenses, you ought to seek business, financial and legal advice.
Matters you should put into consideration before leasing a business premise
How much an investor can afford
A lease commits an investor to pay rent for the whole agreement term to the landlord. It includes rent and other costs that the lease stipulates. A landlord can choose to take away the business premise possession from an investor tenant who doesn’t want to pay rent in time. However, even if that occurs an investor’s business is discontinued, the rent and other charges will have to be settled.
For an investor to know how much lease is affordable, financial advice from an accountant will help determine the realistic rent and other costs. Other charges that are attached to leasing a particular business premise like outgoings and fit-out costs will be laid out.
Planning for the business in future
Any business that needs to be successful will have to come up with a business plan. An investor will gauge the investment and time-period needed to make a specific profit through a business plan’s financial forecast. Such information will be viable where a lease needs to negotiate. For instance, if the forecasts predict 4 years for the business to obtain its objective, then, get a lease that can fully cover for this period. However, if you need to capitalize on the goodwill, you will have to go beyond this period. If this is not the case, an investor may end up shutting or relocating the business.
Government regulations
An investor should check the government regulations related to the business premises. There are certain planning or zoning regulations that local governments give to a particular area where it is allowable to carry out certain kinds of commercial activities. Before identifying a location, an investor should carefully check the regulations since it tends to vary from council to council.
A local council may ask an investor to restrict a building uses, gain building approval, seek signage approval and address parking issues.
Demographics and location
Customer demographics and potential locations are crucial elements that each commercial property investors should research. Knowledge of your target customers’ habits and behaviors, their age and where to find them will be a great indicator of where to locate your business.
You will also take into consideration proximity to public transport, some competitors, visibility of the premises, neighboring tenants mix, foot traffic volume, and parking spaces availability. The choice of the location will also be highly reliant on the business type to be operated on a particular premise.
Lease type
Commercial or business premises entail factories and warehouses, strip shops, showrooms, shopping centers, retail shops, and offices. Commercial Tenancy Agreements Act usually regulates most leases in various states of Australia. It is an Act that stipulates the rights and responsibilities that lease arrangements bestow to tenants and landlords. Businesses that carry out their operations in shopping centers find this Act reliable.
A retail shopping center is some premises on a single stratum plan with a common landlord that carry out retail activities either predominantly, or wholly.
There are some specific businesses that can be carried out in the shopping centers like electronic games, video tapes sale or rental of, DVDs, beauty, treatments, and therapy, shoe repair, hairdressing, dry-cleaning, and several others.
Time frame
There ought to be ample time for an investor to research and carefully evaluate on various options in the process of considering whether to lease business premises. The scenario will be similar when considering whether to purchase established businesses. An investor will need to carry out some a good and diligent review of existing lease terms.
Leasing a premise typically involves:
- Inspecting and researching on the lease
- Obtaining preliminary documentation information about the proposed lease terms from any seller, agent or landlord.
- Searching for business, financial and legal advice to gauge whether preliminary documentation proposed terms to suit the business requirements.
- Carryout negotiations for the lease.
- Prepare final documentation for the lease.
- Premise fit-out and hand over of the property.
It is crucial to adequately plan for each of the stages and don’t underestimate the length that each stage will take since some of the stages may take a lot of time. However, don’t feel pressured into signing anything that you don’t fully comprehend and have not sought enough expert advice.
Professional Advice
A landlord and tenant usually enter into a legally binding contract known as a lease. It is highly recommended to seek enough financial, business and legal advice when you are trying to lease business premises before you:
- Sign a lease offer and other related documentation.
- Pay deposits or any other monies.
- Occupy the particular premises.
- Undertake additional works on the premises.
An investor should not underestimate the complexities that a lease is likely to bring about.
To legally protect the business interests of an investor, a lawyer’s advice will highlight which terms can be negotiable. In case there are any onerous or illegal clauses in the lease, a lawyer will gladly alert you as an investor.
On financial aspects of rent, rent review options, and other operating expenses during the lease period, a financial adviser or accountant will provide necessary advice. They will also prevent you from committing to a lease that is not beneficial to your business through reviewing business plan forecasts.
To understand the business operation well, you will need a business adviser. An adviser will vividly explain a business’ practical requirements like regulatory requirements, location, lease type and customer demographics.
There are many businesses around which don’t like to seek professional advice to save money. However, if you poorly negotiate a lease, it could financially devastate your business to the point of shutting down. A commercial lease is sometimes more complex than you think. So, don’t peg on family and friends’ advice, try to seek experts on the areas.
