What to look for in a lease agreement
Provided by Business Partners Ltd, South Africa's leading investor in SMEs
When you are renting premises for your business, know exactly what the conditions of your lease agreement are to avoid getting caught out by hidden clauses or an unscrupulous landlord.
Finding the appropriate space and location for your business is an important step towards realizing your dream of owning your own enterprise, but as with any contract, make sure you understand the contents of your lease agreement before you sign it.
While it's vital that you get a commercial property lawyer to look over your documents and explain them to you, here are some of the main characteristics of a lease agreement.
- The agreement should cover all of the important issues in clear, concise language that you can understand
- It should contain the name of all parties involved in the lease agreement, the address and description of the property, the rental lease period and rental amount
- Check on the conditions that must be met before the offer takes effect; deposit amount, sureties, inspection of the property and your obligations
- The lease should state the exact size of the space you are renting, the position within the broader premises (if necessary) and anything else (property/building-wise) included in the rental
- Any other facilities you or your clients may use within the broader premises (such as restrooms) should be mentioned
- Stipulate any changes or improvements that need to be made by the landlord before you move in or pay your first month's rent
- Make sure you know how your rental will be calculated. (Rentals for industrial and commercial property are usually quoted in Rands per square metre per month, excluding VAT)
- What costs are included in the rental amount and what other costs will you incur monthly (e.g. electricity, security, maintenance, insurance, etc)? The lease should state exactly what and how much these costs are
- How much parking space is there? Do you pay extra for parking, outside security, etc.
- When does the rental appreciate, by how much and how much notice does the property's management have to give you in this regard
- The lease should state exactly what kind of changes you're allowed make to the premises, either structurally or with regards to the general look and feel
- Who is liable for costs related to damage to your business's property or the premises, a burglary, damage to the building, etc?
- What are general rules around being a tenant, e.g. keeping your premises clean, noise levels, hours of operation, securing your business contents and so on
- Under what circumstances can the lease be voided, either by you or the landlord?
- How does a notice period work should you or the landlord want to end the contract?
- The lease should state what the procedure is should the landlord become insolvent or intend to sell the property
- What is the procedure and who is liable for costs in the case of legal proceedings between you and the landlord or a third party
- What are the conditions for renewing the lease, once it expires?
- A verbal lease can be upheld under South African law, but it's best to get the agreement in writing
It's important that you are clear and agree with all the clauses in your lease agreement. If necessary, ask for certain things to be taken out or included into the contract, so your interests are protected on all fronts. The negotiation process should give you some insight into your prospective landlord and raise any warning bells before you commit.
It's worth spending money and taking some time on this part of the process, since you don't want to be moving out soon after moving in.
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