Leasing: A Tenants' Guide
Before you find a retail or office space:
- It is important to find the right location for your business. Think about your customers, and why you may need to be near them. In the case of Retail premises the location is all important.
- Call us to help you in your search for premises. If we can't help you we will refer you to one of our colleagues who can.
- We specialise in commercial property, which inludes office and retail leasing. We have a huge source of information and can give you advice about the retail market. Peter Ward has 36 years in the Industry mostly in Wellington so he knows Wellington really well.
- We can assist you in setting your criteria. Think about how much space you'll need. Although this can be hard especially if you are starting up in business, it is important to think about the space needed for items such as fittings, equipment, storage etc as well as the display and traffic areas. You'll also need expansion space when your business grows.
- Have a clear idea on how much rent you can afford to pay. Remember to be realistic about potential income from your business especially in the early stages.
- Nearby parking can be a factor in the success of some businesses.
- Pedestrian traffic levels can also influence the volume of turnover in retail businesses.
- Look at the other businesses close to the premises you like and consider their strengths and weaknesses.
- By inspecting a range of premises you will get an idea of what is available, at what cost, what is included in the lease, how it will be renewed and reviewed and any special conditions.
Before signing the lease:
Most leases in New Zealand are either net or gross, and have some form of ratchet clause ( rent can't fall below a certain figure when reviewed) in them. A net lease means you pay a base rental and outgoings (sometimes called operating expenses or OPEX) on top of that. Outgoings are typically Rates, Insurance, costs of running the common areas in the building, (that is space that is for the common usage for all tenants and includes the cost of the lifts, air-conditioning, exterior cleaning, security and cleaning of stairwells the foyer and a number of other things. Sometimes it includes management costs). In addition you also pay what is commonly termed consumables which is the telephone costs, cleaning and power costs of your premises and interior maintenance.
A gross lease means that the landlord pays all those outgoings and you only pay for your telephone, cleaning, power and interior maintenance as stated above. Wtih a gross lease your base rent will be considerably more than that under a net lease. In the first year most gross leases will have a total rent equivalent to the base rental under a net lease plus the outgoings. In the subsequent years the tenant under a net lease may pay more than that under a gross lease but then all is adjusted at the next rent review.
- Once you have found space that you like, ask us for a copy of the lease. The leasing process normally takes two stages with a heads of agreement (called an Agreement to Lease) being signed containing all the basic conditions and terms. This then followed by a full lease document often not signed until after you have moved into the premises. Often the form of lease is attached to the heads of agreement. Read it carefully. If you are considering renting premises, get legal advice.
- Have a close look at the rent review clause as these can vary. Most commonly rent is reviewed to the market every two or three years. Usually there is a ratchet clause which means the rent can not be reviewed to less than either the initial rent at commencement of the lease or that struck at the last review. Sometimes it can be based on a set amount a percentage, Consumer Price Index changes or a combination of measures but these normally appear only in retail leases.
- Ask us how the lease can be renewed and if so, how will the provisions, including rent, be reviewed?
- Right of renewal. The lease may be described as a "3+3+3 lease." This means that the original term of the lease is for 3 years with the lessee having the option to renew it for a second and a third three-year period.
We can help you through the proposed lease to identify what is included in the lease, how the lease will be renewed, how the rent will be reviewed and any special conditions. We are happy to share our extensive knowledge and skills to help you make an appropriate decision. And remember you are the customer! Seek professional advise from a solicitor and an accountant