Leases and Landlords

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Choosing a premises for your business requires careful consideration and in many cases location can be the make or break factor of a new start-up. The type of business you are running will obviously determine the type of site you need so start off by asking yourself a couple of key questions:

If passing trade is not a priority for your business, accessibility and visibility are less important and you should focus on finding a site with low rentals to keep your fixed monthly costs to a minimum. If you want to work from home bear in mind that you are not allowed to employ staff or receive clients to your place of business if it is not in an area zoned for business.

However, if your business is one that relies on passing trade, choose a site that is easily accessible, preferably on a main transport route, with ample parking. It’s a good idea for retail businesses to place themselves in a centre that naturally attracts people by virtue of key tenants such as cinemas, restaurants and supermarkets.

Do your research

Before signing a lease, ask other tenants about their experiences with the landlord. Is the building well managed and, if it’s a retail centre, well marketed? Compare the rentals to other sites in the area. And before you sign anything, take the lease agreement to an attorney who will be able to explain any potential pitfalls.

Key questions to ask:

• Does your business rely on passing trade?
• Does it rely on high foot traffic?
• What kind of space does your business require?
• Will it make a difference to your business if you are located in a retail centre?

The lease agreement and the CPA

The Consumer Protection Act which came into effect on 1 April 2011 brought with it a number of changes that are applicable to lease agreements. The Act mainly affects smaller retail tenants such as individuals starting a business or existing micro businesses, as these tenants generally enter into a lease in their private capacity.

The Act does not apply to ‘Jurisitic Persons’ which includes CCs, companies, trusts, partnerships and associations, regardless of their annual turnover or asset value.

The provisions under section 14 of the Consumer Protection Act which apply to individual tenants of both commercial and private property include:

• Lease agreements have a maximum duration of 24 months, and once expired, will continue on a month-to-month basis unless a new lease is signed;
• A tenant can cancel the lease agreement (of any term) at any time, provided they give the landlord written notice at least 20 business days prior to the intended date of cancellation;
• If the tenant cancels the property lease prematurely, they remain liable to the landlord for any amounts owed to him/her in terms of the lease up to the date of cancellation, and the landlord may impose a reasonable cancellation penalty (that the landlord and tenant agree to);
• The landlord may also cancel the lease at any time if the tenant has committed a material breach of the agreement. The landlord must give written notice of a material failure and invite the tenant to comply with the lease. If the tenant fails to remedy the breach within the time stipulated in the demand, the landlord may cancel the agreement within 20 business days after giving the written notice;
• If the landlord and tenant don’t prematurely terminate the lease and the agreement runs its course, it will be automatically continued on a month-to-month basis;
• The automatic renewal of contracts is only permissible where the landlord has given the tenant written notice of the impending renewal. The renewal must be given no more than 80 business days and no less than 40 business days before the intended date of cancellation;
• The agreement must be in plain and understandable language that would enable an ordinary person with average literacy skills and minimal experience to understand the content, significance and import. The landlord should ensure that the lease is provided in a language in which the tenant is fluent;
• The tenant’s attention must be conspicuously drawn to any provision in the agreement that limits the risk of the landlord or constitutes an assumption of risk for the tenant;
• Contracts should not be substantively unfair. They should not be excessively one-sided in favour of the landlord.

Short term business rentals

If you are trying to keep your costs down, but you don’t have the space or facilities to work from home, you can consider renting virtual office space from an organisation like Regus. They offer different packages to suit your business needs and budget. The most simple option gives you a business address and dedicated phone number so that you are reachable regardless of your physical location. You will also be assigned a multilingual personal assistant to handle your calls and mail. You can upgrade to the next option which comprises these services but also includes dedicated workspace for a certain amount of days a month. This means you can schedule appointments here or just make use of the business facilities.

Useful resources

• Regus: www.regus.co.za

About the Author

Entrepreneur Magazine, South Africa.