- New lease or a renewal?
If your lease contains an option to renew, you are entitled to be granted a lease for a further term (however long that may be), but it is important that you validly exercise the option: Most leases will specify an earliest and latest date for exercising your option to renew. Typically, the lease will also specify that you must not be in default of the lease or have persistently breached the lease.
If there are no further options to renew, it is time for a new lease. If the lease has already expired, it will revert to a periodic tenancy – usually running month to month (although this depends on the ‘holding over’ provision of your lease, if any). It is advisable to avoid holding over a lease, because at short notice the tenancy could be terminated – leaving your practice without anywhere to operate from.
- Parties
The lessor named in the lease should match the registered proprietor shown on the certificate of title to the leased premises. The named lessee should reflect whichever legal entity is appropriate based on the way you have structured your business. For example, don’t sign the lease in your personal capacity if your practice is structured as a company.
If the lessor has a mortgage over the property, it is a good idea to ensure that written consent is obtained from the lender.
- Rent and outgoings
Ensure there is clarity on whether you are entering into a ‘gross lease’ (whereby you pay your rent and don’t contribute to extra charges) or a ‘net lease’ (whereby outgoings are payable in addition to rent).
Rent reviews are another important consideration. Will there be annual reviews? If so, is the method linked to CPI, a fixed percentage, or market rent? Does the method vary each anniversary year of the lease? Market rent reviews are the most prone to contention, particularly if the lease defines ‘market rent’ in a way that differs from what a licensed valuer would consider to be a true market rent.
- Maintenance and make good
The lease should be clear on who is responsible for what maintenance. For example, responsibility for air conditioning (including regular servicing, and liability in the event of a breakdown) is a common area of disagreement.
At the end of the lease, you will also not want to be surprised by onerous obligations to restore, refurbish or ‘make good’ the premises. A lessee’s obligation can be anything from a coat of paint and renewal of worn surfaces, to stripping the premises back to a bare shell, to restoring the premises to the same condition as at the start of the lease. If you install any of your own equipment, and remove it at the end of the lease, there will most likely be an obligation for you to repair any damage caused by that removal.
- Assignment and subletting
Closely look at what ability, if any, you will have to assign your lease or enter into subleases. It is common for lessors to want to specifically restrict or exclude the right to assign and sublet.
You may, however, wish to assign your lease in future if you sell or restructure your business. You may need the flexibility to sublet if you want to set aside part of the premises for use by another business (for example, another doctor or a pathology collection centre). Make sure whatever flexibility you require is provided for in your lease.
- Retail shop lease?
It may seem counterintuitive at first, but a medical practice lease can be covered bv the commercial tenancy retail shops legislation, if situated in a ‘retail shopping centre’. For the legislation to apply, it would be sufficient if your tenancy is part of a cluster of 5 or more premises that are used for carrying on a retail business. If you are entering into a retail shop lease, this is to your advantage: You will be entitled to specific additional rights and disclosures beyond what you would enjoy as a commercial lessee in a different setting.
- Will you have to pay your lessor’s legal costs?
Lessors will often try to include a provision for recoupment of their legal costs (ie lease preparation and negotiation costs) from the lessee. As a lessee you may or may not be prepared to bear these costs as part of your overall commercial deal with the lessor; but it isn’t something you would want to agree to inadvertently.
- Entire agreement
Your lease will almost certainly contain an ‘entire agreement’ clause which will in essence say that the lease document contains the whole agreement between the parties. It may further state that neither party is entitled to rely on any warranty or statement that is not contained in the lease. Therefore, make sure that the agreement which you think you have reached with the lessor, is actually reflected in the final lease that you are asked to sign.
- Get it done properly
A good lease is worth the investment. A ‘simple’ lease that you prepare yourself – or even worse, an undocumented lease – can lead to many disputes later on. We see these types of disputes arise during the term of a lease, as well as at the end of a lease – when parties discover that important matters such as vacating, make good and handover of premises were never properly agreed or documented.
