Start-up Businesses & Lease Agreements: What To Look Out For

A start-up business that does not operate from home will require premises from which it will operate. It will most likely be the case that such a business will not purchase a property on start up because of various factors, like having to raise the required capital, uncertainty of success with high investment and in the event of success, the need for expansion.

Therefore it is not wise to commit to purchasing property from the get-go. It is better rather to lease a property for a period of time as this will lessen your commitment and capital output) and allow you to gauge the success of your business.

A start-up should therefore always consider the lease agreement being signed to ensure awareness of all the costs and conditions involved. Such diligence in the early stages will avoid possible conflict with your lessor (landlord) over the lease agreement.

Please note that the following is specifically for commercial leases as it is premises from which the business will operate.

Here are a few clauses one should always look out for:

1. Period of the lease
2. Rent and Deposits
   • Remember to read this clause carefully to detect hidden costs or difficult payment terms.
3. Use of the Premises
   • This clause is particularly important due to the tendency for evolution and change of small start-up businesses. Always make sure that your operations are permitted by the landlord and if not to obtain prior permission in writing and have it incorporated into the agreement. The mere fact that you are paying for your premises does not entitle you to use it as you so please.
   • One must also note the suitability of the premises as described by the landlord. This clause may go hand in hand with use of the premises.
4. Maintenance
   • Every agreement differs. In some cases the landlord may agree to maintain certain parts of the premises and in others it may be the tenants responsibility (at own cost). It is therefore essential that every business knows who is responsible for what in terms of maintenance.
   • A landlord may also reserve the right to inspect the premises at all reasonable times.
5. Improvements
   • In most cases improvements by the tenant to the property will have to be approved by the landlord.
   • All fixtures or improvement to the premises, whether it is necessary for running the business or not, will in most contracts be at the cost of the tenant. Also make sure to remove such fixtures at the end of the lease as they may become property of the landlord without compensation to the tenant.
6. Destruction or damage not at the fault of the tenant
   • A business must be aware of the ramifications should this occur. For example:
     • The landlord is responsible for repairs at his/her own cost.
     • The lease may be terminated should the premises become untenable and if it is tenable the tenant may request a reduction in rates due to a lessened integrity of the premises.
7. Exclusions
   • The tenant must always be aware of specific exclusions as set out by the landlord, excluding specific responsibilities of the landlord.
8. Insurance on the premises
   • A tenant may have to compensate the landlord for insurance taken out on the premises.

Every lease agreement differs depending on the premises to be leased, the landlord and the business of the tenant.

For more information and advice on lease agreements for your start-up, contact Du Toit’s Attorneys on 012 742 0100 or 012 643 1882. Alternatively, you can send an email to: johan@dutoitsattorneys.co.za or hanja@dutoitsattorneys.co.za