Reading Between the Lease Lines

Leases are pages long and full of legal speak. Michelle Dickens makes sure you don’t miss something crucial.

Reading Between the Lease Lines

Property expert

Michelle Dickens is the founder and MD of the Tenant Profile Network (TPN). She is a successful entrepreneur with a wealth of experience in property. TPN provides comprehensive behavioural profiles on tenants and property buyers.

One of the major hurdles in setting up your franchise unit is finding a location and negotiating the lease agreement. Many franchisors are able to assist in this area and may even conduct negotiations on your behalf, but in cases where you are required to go it alone, Michelle Dickens talks you through the things you need to keep an eye out for before signing on the dotted line.

What is the most common mistake made by prospective tenants when researching and viewing a location?

In the majority of cases tenants have made poor decisions because they were too emotional about the property and did not look at it from a practical perspective. This means they didn’t consider the practicalities such as potential traffic (both in terms of foot traffic and actual traffic getting to the location) and parking requirements, for example.

What are the most common mistakes made by landlords when seeking tenants?

It may be a case of the landlord taking a tenant at face value or taking short cuts when it comes to credit references or performing an in-depth affordability assessment of the business. This means a landlord needs to gather a signed application form and disclosure form, and all the relevant supporting documentation, such as CK documents, ID documents, bank statements, and proof of current address.

What are some misinterpretations made by prospective tenants when reviewing a lease?

  • The monthly costs payable by the tenant over and above basic rent. These other costs can include parking (usually an amount per bay), operating costs such as security, utilities, and any increase in the rates and taxes during the lease. Importantly, landlords of commercial properties are generally Vat registered, and this means the rent and other costs are typically quoted excluding Vat which is then added onto the costs. If the property rented has multiple tenants, the operating costs and utilities are usually paid by all the tenants in accordance with their participation quota (also known as the tenant’s share of the total floor area).
  • The duration of the lease — most commercial leases are for a minimum of three to five years. Tenants should therefore consider where they think their business will be in three to five years specifically with regard to growth and the floor space they will need.

Can lease terms (including rent) be renegotiated after a lease has been signed?

Any terms can be renegotiated providing all the parties who signed the lease agree to the new terms, which then need to be reduced to writing and signed by all the parties. The landlord cannot increase the rent beyond the agreed terms during the lease. These include the agreed escalation date and amount, the pro-rata increase in the rates and taxes and any increase in utility usage costs.

Dissatisfied tenants may wish to withhold rent until issues are resolved. What advice can you offer?

Withholding rent, even if the landlord is in breach, is in itself a breach of lease by the tenant and could result in the landlord cancelling the lease. Withholding rent will also have an impact on the tenant’s credit profile and many commercial landlords and property managers update the tenant’s monthly payment profile with TPN’s credit bureau.

Though disputes do arise, what may seem reasonable to the tenant might not be to the landlord. Always refer back to the lease agreement to establish whether the tenant’s request is covered and to what extent the landlord is in breach of lease. If the landlord is not performing in terms of the lease, the tenant has recourse through the courts.

Tracy Lee Nicol
About the Author
Tracy-Lee Nicol is the managing editor of Franchise Zone Magazine and deputy editor of Entrepreneur Magazine. She studied her Masters degree in Art History and Visual Culture at Rhodes University and spent the next two years working and travelling in Asia. Her love of people, business and teaching is reflected in telling the stories of entrepreneurs, franchisees and franchisors, inspiring others to take the leap to being their own boss and bringing about positive change in South Africa.

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