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Leasing a commercial property? Here’s what you need to know before you sign an offer to lease

When it comes to leasing a commercial property, it's all in the details. If you're a tenant and you've signed an offer to lease a property, you may find it results in a binding commitment. That's why it's so important to get expert advice before you enter into any commitments. Read on for all you need to know about offers to lease.

You know what it’s like. You’ve been searching for the perfect outfit to wear all day. Parking was a nightmare, the shops are teeming with people, your feet ache and if you have to look at yourself one more time in a full-length mirror in a claustrophobic change room with unflattering lighting, you’ll lose your mind.

No wonder you’re suggestive to the pushy sales girl when she tells you that you look amazing. Your resolve is weakening. Perhaps she’s right and this outfit is insta-worthy?

You give in and take it. But when you try on your purchase in the comfort of your own home the look on your partner’s face confirms your suspicions - it just doesn’t work. It’s ok - a bad decision but you can return it. It’s not the end of the world.

Back to the shop the next day only to discover, as the shop assistant points to a small, inconspicuous sign in the smallest font you’ve ever seen, that there are no refunds. Now you have no outfit and a store credit that you’ll never spend. So frustrating.

Entering into a lease? Make sure to read the fine print

We all know that the devil’s in the details. Not to make decisions with our heart or when we’re under pressure or just plain exhausted and fed up. Rationally, that all makes sense but how often does it happen?

Luckily most of these slips aren’t accompanied by significant financial consequences, but it’s a reminder to be cautious when you’re making serious commercial commitments, like entering into a lease.

You’ve found the perfect premises for your business and you’re keen to sign on the dotted line. Perhaps you’re worried about missing out on this location so when you’re asked to sign a preliminary agreement you do so without hesitation. However, if you have a change of heart or you and your landlord can’t agree on all the terms in the formal lease, you may find out that your offer to lease the property results in a binding commitment.

What are Heads of Agreement, offers to lease or letters of intent?

These are all examples of preliminary documents a landlord or leasing agent may encourage you to sign. The tenant will usually pay a deposit and both parties will sign the documents. These documents will set out the particulars and commercial terms between the parties. They’re usually prepared by the landlord or their representative, but they represent the offer made by the tenant to lease the premises.

Are these documents binding? 

These informal documents record the particulars and commercial terms between the parties. Whether it is binding or not will depend on what the tenant and landlord have specified. If the intention is not expressly represented in the documents, then they may be binding.

If the offer is sufficiently certain and contains essential terms agreed upon by the parties, it is likely to be an enforceable agreement. However, the documents may contain an express provision stating that the offer is not legally binding and legal obligations only come into play when the lease is signed.

What does this mean for you?

If you’re a prospective tenant then make sure you:

  • Conduct thorough enquiries into the property to confirm that the property is suitable for your needs
  • Do not sign the offer until you have had legal advice and you understand your legal obligations
  • Get advice from your lawyer on what specific wording should be inserted to protect your rights. For example, the documents may require the landlord or leasing agent to hold the property for you
  • Get your lawyer to determine whether the letter of offer is clear and contains the terms and conditions for entering into a formal lease
  • Get expert advice to help you decide whether it’s in your best interest for the provisional documents to be binding or non-binding and ensure that this intention is clearly stated

Binding or not, what’s important is that you enter into any preliminary commitments with your eyes wide open and that’s why it’s essential to seek expert advice. It’s one thing to be stuck with a useless store credit but an unsuitable lease arrangement is going to cause you serious stress, waste your time and drain your finances.

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