When selecting new leased premises, tenants must be careful of two critical issues in the ‘Offer to Lease’ (OTL). The commercial rental market is now “tenant-favoured” in many areas of Perth. Many tenants think they have done a great job by beating the landlord down on rent and negotiating a large fit-out contribution or a long rent-free period. Feeling satisfied with themselves, they then happily sign the OTL – without legal advice. Murder can be an expensive mistake. A standard-form OTL will commit the tenant to at least two key things, often exposing them to considerable, unexpected costs:
- The tenant becomes legally bound to sign whatever form of lease document the landlord’s lawyer gives them, with no right to negotiate. Apart from rent, many clauses in a standard lease can impose tens of thousands of dollars of cost on the tenant over its term. When the tenant gives their lawyer the lease document to review, it is too late to do anything about it.
- Paying the landlord’s (often high) legal costs of the lease documentation.
Tenants can endeavour to address these issues by seeking to negotiate the following changes to the OTL before they sign it, in addition to any commercial changes they wish to make:
- standard lease documentation: In this market, many hidden expenses of tenant’s lease obligations can be modified or excluded. The tenant should ask to amend the OTL to state that it is free to negotiate the terms of the lease document given to it by the landlord’s solicitor, and that they are not required to sign the lease if they do not agree with the terms. The downside is that this may leave the landlord free to walk away from the deal if it gets a better offer from another tenant, by providing a lease document that the first tenant won’t agree with and refusing to agree to its requests for changes. (In this regard, the tenant is unlikely be any worse off than if they had just signed the OTL without this amendment, however. In that case the tenant would have to sign those lease terms anyway, and they can still take that option in this scenario.)
In this market, however, it is often possible to find another premises, and having the deal fall through may be better than being locked into a lease which subjects the tenant to unreasonable costs.
- landlord’s legal costs: In many cases landlords will now accept an amendment to the OTL stating that they must pay their own legal costs (ask for this first) or, at the least, that the tenant’s liability to pay costs is capped at a modest amount, say $750 – $1500 (propose this as a fall-back if the first request is rejected).
Of course, amendments to any legal document, including something “informal” like an Offer to Lease, and changes to a formal lease agreement, should be made only by a lawyer.