You’ve got your concept, gone to a design studio (hopefully BrandWorks!) to get the branding process underway, you’re testing your recipes with a chef and are happily caught up in the excitement of your business idea coming to life.
The next major step you might be considering, or have already been on the hunt for, is the perfect location to set up shop in. You may have even found a site that you believe ticks all the boxes, but are now faced with an offer from the landlord.
Contributions? Rental term? CPI’s? It can be a lot to take in all at once if you’re not familiar with there terminology commonly used in heads of agreements and leases. Keep reading and we’ll decode some of the language and point out some areas to consider when reviewing your offer.
Before you go into a tenancy, you need to find out what’s there, how much help you’ll get and make sure the requirements from the landlord match your budget and cash flow.
GROSS OR NET
Is the lease amount you’re looking at gross or net? If it’s net keep in mind you will need to pay outgoings to the landlord and find out how much this is.
CATEGORY 1/CORE WORKS
Category 1 works usually refer to the extra modifications that are related to the building and for the unknowing operator are one of the most expensive aspects of a fit out if you have to put them in yourself. Always check what Category 1 works are included, and the specs. Specific category 1 works you’ll likely want to ask about might include:
• Gas supply and what flow
• Mechanical exhaust • Electrical supply - 3 phase or Single Phase? How many amps?
• Air-conditioning
• Grease trap
• Fire services
• Core holes
• Water phone
RENTAL TERM
How long does your lease go for? Landlords generally prefer a longer lease term, but if your concept is new, it might pay to ask for a shorter period with an option to renew. Should you take the option route, do remember that at the option the rental will usually go back to market review, so if you are in an area that is up and coming your rental could go up significantly at the option. If your exit plan is to sell too, a longer lease will work in your favour when it comes to that time.
CONTRIBUTION
There are two ways landlords can contribute to you, and in some cases may offer both in the same offer. A rent free period, as it suggests, is where for the first however many months, the tenant is not required to pay their lease. Alternatively, some landlords also offer cash contributions which can be utilised for fit out. Do your homework and ask agents what the going rate is roughly for contributions. Some landlords also may consider a fit out period, which is prior to the lease starting, but permits the tenant to enter the tenancy and start building their store at no extra charge for occupancy. You’ll also want to read the fine print and find out when you’re getting your contribution if it’s a cash based - can you get some of it earlier? Do you need to show receipts? How many days after opening will you get the remaining amount?
Liquor License
This isn’t part of the lease terms, other than you are required to have one should you be serving alcohol, but is always worth checking prior to going in. Is there an active liquor license and can it be transferred to you? Which liquor license is it (ie. how late can you open till in the evening?). If there is no existing liquor license, it can be a long process and one you should endeavour to start as soon as you know you will be going ahead with the site.
Bank & Personal Guarantees
Bank guarantees are money you have to give upfront, but that you then aren’t able to use - and nothing hurts more than money you know you have that’s not doing anything. You will need to provide a guarantee, but if you can reduce the number of months the landlord is asking for, this will definitely help your cash flow! Check if the landlord requires personal guarantees as well, if you have to provide a personal guarantee, you as an individual are liable should things go south.
Trade Restriction Hours
If you are going into a shopping centre, or corporate tower, you may want to check if you are restricted as to what hours you can operate.
Seek Legal Assistance
More important than all of this, is to seek legal advice before signing any lease, as there are clauses and provisions in lease documents that require the professional advice of a solicitor.