On reading a commercial lease before signing it
Most leases are read once, by the tenant, on the day they are signed. The act of reading deserves more time than that, and a different kind of attention.
A commercial lease is among the longest commitments a small or medium-sized business will undertake. Five years is common; ten is not unusual; with options, the document can govern a business's premises for fifteen years or more. The financial commitment over that period — rent, outgoings, insurance, fitout, make-good — frequently exceeds the value of the business itself.
It is striking, then, how often a lease is read in a hurry. The tenant has been hunting for premises for months. The agent has produced a draft. The fitout schedule is pressing. There is a moment, somewhere in the negotiation, where the parties stop reading the document carefully and begin to assume it says what they have agreed. The lease is signed on the basis of that assumption.
The assumption is sometimes correct. Often it is not, in ways that emerge only later.
What the document is, and what it is not
A lease is not a description of an arrangement. It is the arrangement. What the agent said, what the landlord intended, what the tenant understood — these are not parts of the lease unless the document records them. The document records only what the document records.
This is well known in principle and forgotten in practice. Tenants will frequently say, in a dispute, that they were told something during the negotiation. They may well have been. Whether that statement has any bearing on what the lease now requires is a separate question, governed by the document and by rules about what can supplement or contradict it. The default position, in most cases, is that the document speaks for itself.
Reading the lease before signing is reading what will, in most cases, be the only thing that matters.
The clauses that look ordinary
Disputes do not usually arise from clauses that look unusual. They arise from clauses that look ordinary and turn out to be specific.
Outgoings provisions are an example. Most commercial leases require the tenant to pay outgoings. The clause looks similar across most documents. The category of what counts as an outgoing, however, varies considerably between leases — and the difference can be substantial. Land tax, body corporate levies, capital works contributions, repairs to common property, management fees: each of these may be included or excluded, and the totals over the life of the lease can run into tens of thousands of dollars.
Make-good clauses are another example. Every lease has one. The scope of make-good varies wildly. A lease may require the tenant to return the premises to the condition existing at the commencement of the lease, or to base building condition, or to a condition specified in a schedule that no party has read in years. The cost of complying with each is materially different.
Repair obligations, redecoration clauses, restrictions on assignment, options to renew, rent review mechanisms, default provisions: each of these looks ordinary on a casual reading and rewards a slower one.
What slow reading looks like
Slow reading is not legal expertise. It is a willingness to ask, of each clause, what it actually says, what it requires of the reader, and what would happen if the reader were called upon to comply with it tomorrow.
For most clauses the answer is uneventful. For some it is not. The clauses that prompt hesitation — the clauses where the reader pauses and is not sure what is being said — are the clauses worth attending to. They are sometimes the clauses that have been assumed to mean one thing and in fact mean another.
The reading does not need to produce certainty about every clause. It needs to produce a list of the clauses about which the reader is uncertain. That list is the work that legal advice, if obtained, should address. The lease itself does not need to be read by a solicitor; the questions it raises do.
The negotiation that has not yet happened
One further observation. By the time a tenant has read a commercial lease carefully, that tenant typically has questions, and sometimes objections, that have not yet been raised with the landlord. These questions and objections may or may not be accepted. They are, in most cases, more readily accepted before signing than after.
The negotiation that takes place after careful reading is sometimes the most useful negotiation in the entire transaction. It is also the negotiation that occurs least frequently, because it is the negotiation that requires the reading to happen first.
This piece is published for general informational purposes. It is not legal advice and does not address the circumstances of any particular transaction. A person considering a commercial lease should obtain advice on the document in front of them.