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Understanding short term leases

If you’re looking to trial a new business idea or identify locations for expansion, a short term lease may provide you with an opportunity to test the market without the financial and legal commitment of a longer commercial lease.

Here is a rundown on the pros and cons of short term leases to help you decide if they may be an option for your business.

What is a short term lease?

A short term lease is generally the right to occupy premises for the purpose of conducting a business for a short period of time.

There is no law on how long in time a short term lease must be, however, under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (the Act) certain business leases of up to six months come under the Act.

Why would I enter into a short term lease for my business?

There are numerous reasons and benefits to entering a short term lease, including:

  • Being a great way to give your business idea a go without the cost or commitment of leasing business premises for a long period - if things don’t work out, you’re not locked into a long-term lease.
  • A chance to test the market for your products; see how well they sell and gather feedback from real customers.
  • Test a particular location, whether it brings in sufficient foot traffic.
  • Cost savings; rent on short term leases can be lower than normal rates.
  • It’s a great way for online businesses to trial a bricks-and-mortar store front.

What are the benefits for an existing business?

Short term leases can provide a number of benefits for existing business owners too, including:

  • An opportunity to clear out old stock for one off promotions and special sales.
  • Trial new products or services that you may not want to introduce into your existing business until you know you have them right.
  • Expansion; if you already have a retail presence and are thinking of opening additional store fronts in new suburbs, a short term lease can help you test how well your products sell in different locations.

Any reasons why I shouldn’t enter into a short term lease?

There are many reasons for not entering into a short term lease including:

  • In a short term leasing arrangement, you have no rights to stay in the premises longer than the lease period (unless the lease includes an option to extend or the right to extend the term of the lease under the Act applies to the short term lease).
  • If your landlord agrees to extend your lease at the end of your short term lease you have no control over how much the rent and other lease costs will increase. This could make remaining in the premises unviable for your business.
  • The time, effort and cost of a short team lease may not be financially viable for your business.

Things to look out for before entering into a short term lease

  • Ensure the lease and the terms and conditions will meet your short and long term business needs.
  • Understand the landlord is not obliged to extend your fixed short term lease and can refuse to extend it.
  • Don’t spend money on a fit out or specific items (include costs involved in lease) if you can’t recover the money during the period of the short term lease.

How should I prepare for entering into a short term lease for my business?

What should I do before agreeing to a pop-up shop short term lease?

We recommend not entering into any lease, short term or otherwise, unless you get full legal, financial and business advice including advice on your rights and the options under the Act.

Where can I obtain more Information and assistance?

Read our leasing business premises information to help you understand more about commercial leases and negotiating an agreement.

You can also contact our free business advisory service on 133 140 to speak to one of our commercial tenancy advisers.

 

Photo credit: Tourism Western Australia

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