Navigating the Commercial Property Lease

Commercial property lease agreements are commonplace in the business world, and chances are you’ve already signed one – or perhaps many – during your professional career. However, unlike a private home lease governed by the Housing Act 50 of 1999, a commercial lease is not covered by a legislation.

Similarly, the Consumer Protection Act only protects individuals or small businesses with assets and turnover of less than R2 million and as such, will generally not be applicable in a commercial lease.

At the same time, a number of tenants and landlords find themselves having disagreements because of a mutual misunderstanding of the lease and its various commitments and responsibilities.

To help tenants navigate the complexities of lease agreements and ensure a mutually beneficial agreement with their landlords, we’ve put together a quick guide to the lease

Read on to learn more about several important matters including deposits, fees, and levies, the appropriate use of the premises, and the responsibility for maintaining common areas.

Why lease agreements are so essential

One of the key differences between a micro business and a professionally run SMB or small corporation is the need to manage all business processes using professionally drafted written documents.

The lease agreement is no exception.

Small business owners who start out with informal, word-of-mouth lease agreements often find the arrangement works – until it really doesn’t.

The main cause of tension between landlords and tenants where a lease is absent comes down to misunderstandings about the rights and responsibilities of both parties.

To avoid the pitfalls of a commercial lease and potentially unpleasant misunderstandings, which can take on a legal aspect if either landlord or tenant decides to pursue the matter in court, a comprehensively drafted agreement is essential before renting any commercial space in Cape Town or elsewhere.

Our team of seasoned commercial property brokers has decades of experience liaising professionally between landlords and tenants – and we always insist on a legally watertight lease that is satisfactory to both parties.

The 3 Types of Commercial Leases

1. Gross Lease – The tenant of a gross lease pays a fixed monthly rental, while the landlord is responsible for all operational and maintenance expenses on the commercial property, including property management, insurance, taxes and utilities.
2. Net Lease – This type of lease has more tenant involvement than a gross lease, with a stipulated rental and proportional operating costs. In a net lease the landlord will usually cover the cost of common area maintenance (CAM) as well as taxes and sometimes, insurance.
3. Triple Net Lease – In this type of lease the tenant is responsible for CAM which is split across all tenants.

Here are some of the components that any good commercial property lease should contain.

• Full details of the lessor and lessee’s identities and business information.
• The name and address of the commercial premises.
• The location of the premises within the building and the square meterage of the floor space.
• Any additional facilities which the tenant has beneficial use of. These could include parking spaces, storage areas, gardens, and other amenities, boardrooms, bathrooms, shared, kitchens, and others.
• The monthly rental amount, before, and after tax, and any additional levies and fees for which the tenant is liable on both a regular and irregular basis.
• The full listing of the allowable activities which may take place within the rented premises.
• In the case of a retail premises, permission to serve food and drinks should be stipulated in the contract.
• The same goes for any business activities that fall outside the normal scope of regular business activities. For example, storage of potentially dangerous items or chemicals on the premises.

As mentioned in the 3 types of leases above, sections specifically outlining the management and maintenance of common areas (CAM), can be an issue which often cause disagreement between landlords and tenants.

Common area management: a point of contention for landlords and tenants

A well drafted lease that sets out the specific area that a tenant will occupy, the allowable uses of the office premises, and the responsibility for paying water, electricity, and other management fees should eliminate the majority of potential disagreements between the two parties.

However, as with many legal agreements, the undefined elements of the lease are usually responsible for misunderstandings – and common areas are a case in point.

Common areas include facilities like hallways, shared kitchens, elevators, the reception area, and any gardens or roof spaces in the building.

These areas may be used by everyone, but misunderstandings arise when it comes to apportioning responsibility for their upkeep and agreeing on what contribution each tenant as well as the landlord will make to cover these expenses.

The guidelines to CAM and financial responsibility for their upkeep

The responsibility for maintaining common areas falls on the landlord or management company. However, the cost of common area management is born by the tenants of the building.

Cleaning, repairs, and security assurance in common areas should be carried out by the building management company.

Tenants need to abide by agreed-upon building rules, but they should not be expected to take active steps in terms of repairs or maintenance.

The monthly common area management fee is calculated on a proportional basis. This is done by totalling the total floor space of common areas in square meters and dividing it by the number of tenants in the building.

In some cases, tenants with larger office premises will be liable for higher common area management fees.

With all aspects of the rental agreement, attempting to argue about your responsibilities as a tenant after the agreement is signed may prove to be extremely difficult and cause undue tension with your landlord.

For this reason, it’s better to negotiate all aspects of the lease upfront and reach a mutually satisfactory agreement with your landlord. This will set the scene for a smooth working relationship that could end up lasting years – or even decades.

Abiding by the lease for excellent tenant relations

Once the lease agreement is signed and sealed, the onus is on both landlord and tenant to abide by its various clauses and provisions, but it’s also worth doing an annual lease audit, particularly if you have more than one commercial lease agreement in place.

A lease audit means doing a deep dive and comprehensive review into the details of a lease to ensure and verify the accuracy and compliance of a commercial lease agreement.

The closer both landlord and tenant stick to their commitments in terms of the lease, the greater the goodwill between the parties. This can make things much easier in the event that a part of the lease needs to be negotiated in future.

Finding the ideal commercial space in Cape Town to grow your business is another essential factor that contributes to your ability to fulfil your end of the lease agreement.

A Cape Town office space rental agreement that is perfectly suited for your business will result in excellent growth and expansion for the enterprise over the years, resulting in mutual benefit for both tenant and landlord.

The Commercial Space team’s decades of collective experience in finding the perfect match between landlords and dynamic tenants can help put you on the path to expansion and success. Contact us today to view our portfolio of premium office spaces in the Cape peninsula.