How your lease can impact your fitout

Your fitout is going to be one of the biggest capital investments you will make as part of setting up your new shop.  And entering into the lease for the tenancy is a huge commitment – you need the best legal advice you can afford to make sure you don’t make miss any of the finer points.

Your lease documents can have a huge impact on your fitout.  These are my top 3 things to look out for:

What is your landlord giving you?

A good leasing pack should include tenancy plans, a lessor/lessee matrix, and a fitout guide if the landlord is going to impose design criteria on your fitout.  I’ll talk more about the fitout guide in a moment, but the first two are critical.  They will describe what you are getting – not just the dimensions of the space, but what it includes, and who is responsible for what.

To budget effectively for your fitout, you must read and understand these documents.  Sometimes you might have to use a particular contractor.  Other times there might be works the landlord will do for you but at your cost, and those costs may be higher than you expect.  You might have to build your own shopfront or provide your own air-conditioning.

Do not rely on your next fitout costing the same as your last.

You may have been successful in negotiating some additional items – good for you!  Now make sure to include them in your lease documents.  If your paperwork doesn’t include a deal agreed in a conversation and a handshake, then your fitout may end up in strife.  Remember – a handshake is not worth the paper it’s written on.

What does the Fitout Guide say?

A Fitout Guides describes the landlord’s design requirements and their processes.  But it might focus on the design (lots of pretty pictures!) and not the process, so make sure you read the fine print.

In some instances you might have to submit your design for feedback three times before getting final sign off.  You may need full services documentation before you can start any work on site.  I talk more about this here.  Some landlords will also want to approve your designer and shopfitter, so make sure you are clear about those requirements too.

The important thing to take away from this is the impact on your budget and your program.  How long is it going to take your designers to jump through all these hoops?  When do you need to start the process in order to make your handover and opening dates?  And will you have to add in fancy design flourishes that cost more than you want to spend?

What happens at the end of the lease?

Ken Burgin talks here about three things to watch out for when renewing your lease.  From a fitout point of view there are a couple of things I would add in.

If you’re staying, do you have to do a fitout upgrade?  Most common in larger shopping centres, landlords might want you to freshen up your fitout so that the centre overall doesn’t end up look dated and shabby.  It’s a worthy aim and one that makes for a better environment for customers, but how far do they want you to go?  A lick of paint and a tidy up, or a new shopfront and upgraded lighting?  Be clear on the extent of the refurbishment clause right at the beginning so you’re not shocked with a big capital outlay after your first term is up.

And if you’re leaving, what about a make good?  Do you need to strip everything back to the way you found it?  That can cost upwards of $10,000.  Or will the landlord let you hand over the keys and walk away?  Again, make sure the extent is detailed if you need to do this.

In summary …

Forewarned is forearmed.  Make sure all these things are clearly detailed in your lease.  Make sure you work out the impact on your fitout budget and program.  Do some last-minute negotiating if required.  And do not sign until you are completely satisfied that everything is documented.

DISCLAIMER: This article is not intended as legal advice.  You should seek legal or other professional advice before entering into a lease agreement.

To find out more about the tailored service Setting Up Shop offers our clients, get in touch or head to our tenancy coordination and project management pages.

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