Page 33 - Food&Drink Magazine October 2021

over a tenant. As an extreme example, this was evidenced by the need for government intervention in landlord’s providing rent relief for businesses impacted by COVID-19.
An appropriate level of risk-sharing would mean that where an inability to fully or partially utilise premises exists, there are proportionate protections and occupancy cost relief contained within a commercial lease. As a minimum, an ideal outcome will always address adequate security of tenure and enable the business to make long-term decisions regarding investment in the business with a high degree of certainty.
FLEXIBILITY
While commercial leases are generally medium to long-term commitments, the typically fixed structure and nature of a commercial lease rarely reflects the fast-evolving world of the businesses we represent. The risk of a long-term lease commitment no longer meeting the needs of a business can be mitigated through different measures such as rights for contraction and expansion, early termination rights, broadly defined ‘permitted use’ provisions and unrestricted rights to sub-lease or assign a lease.
OBLIGATIONS
Commercial leases are typically written with onerous
obligations on tenants with undefined or vague obligations on a landlord in areas such as building services, maintenance, repair and replacement. A balanced lease will ensure there are clear obligations on a landlord to maintain a building to an agreed standard of performance and state of repair. This is particularly relevant when representations are made around environmental ratings or attributes of a building.
GUARANTEES
The level of guarantees sought by a landlord are typically onerous and disproportionate to the level of risk associated with the lease agreement. Whether the landlord is seeking personal
guarantees of the directors of the company, a parent company guarantee or an escalating bank guarantee, these should always be assessed in the context of the level of risk being assumed by the landlord. Too often, a one-size-fits all approach is adopted without due consideration to the level of risk. The landlord should also guarantee certain standards of building services and performance, such as environmental ratings, power supply or a range of temperature control, depending on the nature of the agreement and representations made up front.
In closing, it is important to note that a business may not achieve absolutely everything it sets out to in relation to each of the five key areas outlined in this article and local market dynamics can play a significant role in determining the outcomes of a commercial lease negotiation. Having an informed position for each of these five key areas from the outset of a strategically executed lease negotiation process, however, will allow a business to make proactive decisions along the way, only conceding lower priority items in return for achieving higher priorityterms. ✷
✷ ABOUTTHEAUTHOR
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PLANT DESIGN & FITOUT
Dylan O’Donnell is the managing director of Lpc Cresa, Victoria. He has more than 20 years of experience advising and representing commercial real estate occupiers from SMEs to ASX-listed and Fortune 500 companies across all industry sectors.
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