Understanding your Lease - Tips when Negotiating your Rent

Posted by Malcolm Campbell, Luke Mitchell on 06 July 2017
Understanding your Lease - Tips when Negotiating your Rent

The amount of rent you agree to pay may seem simple, however many business owners do not properly understand how their rent is calculated and the true cost of occupying your business premises.

It is important for any prospective lessee to do their research and know what the prevailing rates are for the types of premises they are looking for in their area. They should make sure they are comparing like for like, as differing styles of properties in different locations are not always good comparators. Know what the key features are of each location such as parking, access to public transport and other critical infrastructure.

It is also a smart move to figure out the type of lessor the lessee will be dealing with. Is the property owner an institutional investor who has the means to offer attractive incentives but will be inflexible on the lease terms? Or, is the lessee dealing with a mum & dad investor (think SMSF) who may not have the means to help contribute to the lessee’s fit-out costs or discount on rent in the early months, but may be willing to be more flexible on the terms of the lease?

When negotiating the rent, be careful to ensure that a generous incentive is not being made up for in an inflated rate of rent, or likewise, that low rent is not being covered by inflated outgoings.

It also pays for a lessee to keep in mind that incentives to have a lessor’s tradespeople conduct fit-out works may not be true or full value incentives if the claimed value of the building works has been inflated. In this instance, it may be better for a lessee to take the equivalent sum in reduced rent and have their own tradespeople complete the work.

As with most things in business, each party should know the market, do their research, and be clear on what they want and what they can afford – and don’t go beyond this.

Contact us before entering into a lease so can help you to understand the true cost of your business premises.