Are you planning to purchase a supermarket business? If you want to maximise your gains from your new investment and conduct business unimpeded, one of the first things you should do is make sure you understand the terms of your lease.
A commercial lease is a type of lease that applies to properties used for business. Compared to residential leases that last just months (usually six to 12 months), they may last up to 10 and 20 years. There are many kinds of commercial properties, so the terms of leases may vary with each specific property. For example, the terms for a small convenience store may not be similar to those for a comparatively bigger supermarket.
That being said, there are a number of clauses and obligations commonly observed in commercial leases.
- Rent – This is one of your primary obligations as a tenant. Which portion of the rent you will be paying for will depend on your agreement with the landlord and the current owner of the supermarket business for sale. You can also negotiate the rent with your future landlord if you find it too high.
- Timeframe – How long is the lease valid? While most landlords opt for long-term leases, you may want something short-term especially if you are new to the business and are unsure of its future. In this case, always take the option to renew.
- Outgoings – These are property-related expenses, such as land tax and utilities, among others. In most commercial leases, they are handled by the tenant, although your case may differ based on how you negotiate with your landlord. Who shoulders outgoings must be specified in the terms of your lease.
- Security bond – This acts as your landlord’s buffer in case you are unable to fulfil your obligations. They usually amount to three to six months’ worth of rent and are set by way of a bank guarantee. The terms of your lease should detail the repayment details of the bond.
- Legal fees – These refer to the cost that the landlord incurs in preparing the documents for the lease. Ideally, who pays for these should be identified in the terms.
- Repairs – Your new supermarket will need repairs and maintenance over time. When you negotiate with your landlord, be sure that the terms of your lease indicate who shoulders repairs. Similarly, the terms should also indicate whether or not you can perform changes on the property.
- Insurance – A lease usually requires that you take an insurance for the building and fixtures in the property. There are different kinds of insurance available that are suited to various types of businesses.
- Right of Assignment – This clause allows you to transfer the lease to a new tenant in case you decide to put the supermarket business up for sale. The terms should indicate this right and related clauses, such as termination and notice requirements.
Your landlord may set up other clauses in the terms of your lease. Be sure to understand them as well as you can to ensure that you effectively fulfil your part of the agreement. If you are having trouble with specifics, you can always ask for assistance from experts.
For you, what terms make up your idea of a good commercial lease and why? Tell us in the comments below.