The New Year is a time for fresh starts, for setting goals and envisioning a brighter future. For many small business owners, this period of reflection also extends to their businesses. With more than 701,000 small businesses operating in Victoria, and a large number of those leasing their places of business, I anticipate some family holiday dinner conversations to include questions like ‘How’s the shop going?’ or ‘Have you found a new shop yet?’
A retail lease is a significant financial and legal commitment that will shape your business' trajectory for years to come. This New Year, resolve to invest in setting-up the right lease agreement for your business, and if you’re already in a lease, review it to ensure you’re on the right track.
I’ve prepared some tips to consider:
1: Act on your business’ needs, not your wants. That trendy location might be tempting, but does it truly fit your target market? Is the area already serviced by competitors? A smaller, more affordable space in a less flashy area might be the smarter choice. Consider your business plan, customer base, and potential foot traffic. Make sure your desired premises is the right "fit" for your business.
2: Gather all the facts. When considering a property, the landlord or their managing agent should provide you with a copy of the lease and a disclosure statement which includes floor plans and a list of outgoings (expenses you can expect to pay). They should also provide a copy of the Victorian Small Business Commission’s fact sheet on retail leasing for prospective tenants. It includes a helpful checklist to ensure you don’t miss anything.
3: Understand what’s proposed. Lease agreements are complex documents, full of legal language and clauses. Don't just skim through them – seek out and understand key elements such as the permitted use, maintenance responsibilities, options to renew, notice periods and exit clauses. Seeking a review and advice from a lawyer is a wise investment.
Unfortunately, we often see people enter into lease agreements for properties that don’t support their intended use. Do you due diligence and speak with your local council to confirm you can use the property as you intend. Consider also how long it may take to secure the necessary permits and approvals. You may wish to factor this timing into your budgeting and lease negotiation.
We also frequently see people personally sign as guarantors for a lease, which opens them to liability for unpaid rent if the business is in arrears. It’s important that you understand the risk you’re taking on, particularly in the event that your business fails.
4: Consider all your costs and forecast your budget. How is the rent calculated? Is it indexed with CPI (consumer price index) or will there be set rate increases with each year? Beyond the rent, consider outgoings (expenses a landlord can pass on such as council rates), utilities, insurance, and fit-out costs. A seemingly affordable lease can quickly grow to be a financial burden if you haven't accounted for all expenses. Budget realistically and anticipate likely increases.
5: Plan ahead. If you find success, you’ll want the security of the opportunity to renew your lease. These are called options. What if your business grows faster than anticipated? Or what if there's a downturn? Consider clauses that allow you to sublet or even transfer the lease. Think also about your make good obligations: that means at the end of the lease you’ll be required to remove your fit-out and return the property to the condition you leased it in. Ensure you have a property report to refer to and consider this when investing in a fit out.
In short: don’t forget to think about the "what ifs" before you commit.
6: Consider a pop-up. If you’re trialling an idea, consider a short-term lease of several months or a single year. This is attractive for those who aren’t ready to commit to a rent of several years, but should be entered into with the knowledge that if your business is successful and you wish to continue there, you’ll need to negotiate a new lease at the conclusion of that arrangement.
Retail tenants are entitled to a five-year lease, but you can apply to the Victorian Small Business Commission (VSBC) to waive that right and pursue a one-year lease. You can apply for a waiver certificate at vsbc.vic.gov.au.
7: Negotiate. Don't be afraid to negotiate rent, lease duration, outgoings, and other terms. Landlords expect it, and a well-negotiated lease can save you significant money over the long term. Entering into a lease is exciting, but don’t let this emotionally charge your decision making. If negotiating isn’t your strong point, consider enlisting a trusted friend or family member to help.
Whether you're embarking on a new lease or reflecting on your current one, taking the time to make informed, intentional decisions is the best way to ensure a prosperous 2025. The VSBC can provide valuable information on retail leasing, available at vsbc.vic.gov.au or calling 1800 878 964.
Here's to a successful and fulfilling year ahead!
About us:
Lynda McAlary-Smith is the Victorian Small Business Commissioner.
The Commission delivers low-cost and impartial dispute resolution services for the state’s small businesses and is a statutory authority on disputes related to retail leasing, franchising, farm debt, gig workers, certified passenger vehicles and forestry contractors and owner drivers.
The VSBC assisted 1,221 disputes under the Retail Leases Act 2003 during Financial Year 2023-24.
Contact details:
Nick Edrington
nick.edrington@vsbc.vic.gov.au
0459 542 115