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Tips for pain-free lease agreements

11 Dec 2013

The New Year typically signals the time when lease agreements are up for renewal. For commercial tenants, this presents a good opportunity to reassess the appropriateness and feasibility of the space for the business occupying it, and then either renew the lease or seek new space.

A comprehensive, watertight lease agreement is critical to maintaining cordial relations and avoiding legal backlash for landlords and tenants. While the agreement is a binding document and constitutes a financial commitment from the tenant, the landlord too has a responsibility - to ensure the terms are fair and compliant with the Consumer Protection Act (CPA).

Commercial property consultancy, and experts in brokering and developing solid relationships between landlords and tenants, Galetti Knight Frank believes that the process begins with matching appropriate landlords with tenants.

Tony Galetti, co-founder and joint CEO, said: "It makes good business sense to nurture trustworthy relationships with both our landlord and our tenant clients, so we go to great lengths to assist both parties in meeting their respective objectives."

Galetti suggested five key tips to help ease the process and ensure a mutually beneficial outcome:

Ensure time is on your side: Commercial tenants obviously need to ensure that it's business as usual in order to avoid financial loss, so making early enquiries into lease renewals with an existing landlord is highly recommended. Tenants are in a far stronger position to negotiate if they've allowed for enough time, before the agreement expires.

Do your homework: The office space rental market has been flat for the last 24 months so tenants are advised to check out comparative rentals across different areas and generally have a basic idea of market conditions and industry standards.

Be above board: Being fair and reasonable in the terms of the lease is always advisable and generally sets the tone of mutual respect between landlord and tenant. But thanks to the Consumer Protection Act (CPA), which also covers lease agreements, landlords are by law required to be fair and reasonable. The Act applies to all commercial leases entered into with natural persons as well as juristic persons with an annual turnover or asset value of less than R2 million.

Have a plan: It makes sense to formulate a long-term plan that you can revert back to. For a landlord, this means for example, not losing sight of future plans to renovate or expand. Meanwhile, a plan will enable the tenant to reassess whether the space still meets the needs of the business over time, such as whether it provides suitable amenities for employees or adequate technical infrastructure.

Using a credible property broker with regional expertise will be enormously helpful in this process. Their knowledge of the market and their ability to navigate through the myriad negotiations will go a long way towards a successful conclusion for both landlord and tenant.

Finding good landlords and good tenants isn't necessarily an easy task and, unfortunately, many people can attest to having had a bad experience in this regard. Like any relationship, there are those individuals who are far more likely to entertain compromise, while others won't. But, either way, engaging a broker that really understands your business objectives and specific situation will demonstrate their value towards a successful negotiation.