Currently looking into a Lease? This is a must read to know what potential risks to avoid.
Starting or purchasing a retail shop or business is a risky affair, and one of the most significant legal and financial risks you will come across will relate to the lease you will enter. For most business owners, entering into a lease and financing the new business will be one of the most significant obligations, and risks, undertaken by them.
BlueKey Lawyers can help navigate the risks associated with entering into a lease, and help to ensure that the lease protects our clients and accurately reflects their intentions.
Unlike leases for offices and certain types of businesses (such as medical practices), leases for retail shops are very highly regulated, and place certain obligations on both the lessors and the tenants. For example, lessors must supply the tenants with a disclosure statement which provides a lot of useful information to the tenant. Obligations imposed on the tenants are to obtain independent legal and financial advice in respect of the lease.
The reason that those obligations have been placed by the governments on the parties to retail shop leases is to reduce the risk of failure of new businesses, and also to minimise the likelihood of disputes between the parties. Some prospective tenants ask their lawyers to ‘sign off’ the lease without reading the lease in full or having a complete understanding of the most important obligations in it. It is our job to ensure that you understand the lease before signing it.
One of the main risks to look out for when entering into a new lease is to ensure that any representations made by the lessor are reflected in the lease. The general rule with leases (and any other contracts) is that they represent a complete agreement of terms between the parties. Unless representations made to you are in the contract, you may not be able to rely on them if a dispute arises between the parties.
Often the lessors make promises which can be very important for the tenant, but which often are not in the lease.
An example of such a promise is the amount of foot traffic that the premises are likely to receive, and the amount of foot traffic often will translate into the number of customers a shop will receive. Foot traffic will also greatly depend on the shop’s proximity to major retailers, such as big supermarket chains and department stores. Tenants who rely on receiving customers from traffic flowing to major shops must be aware of, and manage, the risks of those shops shutting down.
Another example is where tenants are promised car parks, storage areas and permission to use areas outside the shop for customer seating. External dining areas may confer a huge benefit on restaurants and fast food businesses, and it is important for the tenant to understand its rights and obligations in respect of such areas. For example, those areas may be granted exclusively to the business, or could be shared by several businesses.
Tenants must also ensure that leases correctly show how and when the premises must be used. Most retail shop leases will specify the minimum operating hours for a business, what is the permitted use for the premises. Leases will also state whether the permitted use is exclusive to the tenant if it is a complex of shops or a shopping centre. Failure to correctly state these matters in the lease could have severe repercussions for any business.
While most business owners are keen to start running their business, they must consider the financial and legal consequences of the lease in vacating the premises. Vacating premises is often an expensive endeavour, especially if vacating because the business was for some reason not successful. Questions that tenants must consider when signing the lease are:
- what are the costs the tenant is likely to incur in vacating the premises?
- is the tenant permitted, or required, to remove the fit outs, and to make good any damage caused by removal?
- is the tenant required to refresh the premises by repainting and replacing the floors?
If you are thinking of signing a new retail shop lease, then the chances are that you must obtain legal advice. By choosing BlueKey Lawyers, you will be choosing a Firm who is willing to understand your business goals and who has knowledge and experience to ensure the best legal outcome for you.
Author: Pavel Sergeyev – Commercial Solicitor