Understanding the tricks and traps to leasing a transport storage facility

Transport and logistics are the backbone of Australia’s economy, with the need for secure and efficient storage facilities increasing steadily. Whether you are a seasoned logistics professional or a newcomer to the industry, leasing a transport storage facility in Australia can be a complex process. This article serves as a guide to help you navigate the intricacies of leasing a transport storage facility.

Understanding your needs

Before commencing the leasing process, it is crucial to have a clear understanding of your business’ storage requirements. Having completed a number of these transactions, there are a number of key points that are consistent to most deals:

• Storage capacity: Determine the volume of goods you need to store and estimate your future growth needs.
• Location: The facility’s location should be strategically chosen to minimize transportation costs and ensure accessibility for your supply chain.
• Facility type: Decide whether you need a general storage facility, cold storage, or a specialised facility for hazardous materials.
• Duration: Decide on the lease term that aligns with your business goals, whether it is a short-term agreement or a long-term commitment.
• Budget: Establish a budget for leasing the storage facility, taking into account rental costs, maintenance, and additional fees.

Finding suitable facilities

Once you have a clear understanding of your needs, it is necessary to source a suitable transport storage facility. The key sources are generally derived from:

• Online listings: Utilise online platforms, such as commercial real estate websites and directories to search for available storage facilities in your desired location.
• Real estate agents: Contact real estate agents who specialise in commercial properties as they can provide valuable insights and access to off-market listings.
• Networking: Attend industry events, join professional associations, and connect with peers in the logistics and transport sector. Word-of-mouth recommendations can lead to hidden gems.
• Government resources: In some cases, government agencies may provide information on available storage facilities, especially if they are part of economic development initiatives.

Evaluating transport storage facilities

Once you have identified potential facilities, you need to evaluate them to ensure that they meet your specific needs and requirements. Key items that will help you assess each option are:

• Location: Confirm that the facility is appropriately located in proximity to your transportation routes and target markets.
• Infrastructure: Check the facility’s infrastructure, including access height, hard stand construction, loading docks, shelving, and security systems. Ensure they meet your operational requirements.
• Accessibility: Verify that the facility is accessible 24/7 or within the hours that suit your business operations.
• Security: Evaluate the security measures in place, such as surveillance cameras, alarms, and access controls.
• Compliance: Ensure that the facility complies with all relevant regulations and safety standards, especially if you are storing hazardous materials.
• Lease terms: Carefully review the lease terms, including rental costs, deposit requirements, and any additional fees.

Lease documentation

There are potentially two lease documents to your transaction:

1)     Agreement for Lease

Before signing the final lease agreement, it is common for parties to enter into an ‘Agreement for Lease’. This preliminary document outlines the key terms and conditions that will be included in the formal lease agreement. They are commonly used when construction is required before the commencement of the Lease. When negotiating an Agreement for Lease, it is important to consider the following:

• Key terms: The Agreement for Lease should include essential terms such as the parties involved, the property’s description, landlord obligation to construct the premises, proposed rental terms, and the commencement date. It serves as a blueprint for the final lease agreement.
• Due diligence: During this phase, both parties may conduct due diligence. The tenant can perform inspections to ensure the property meets their requirements, while the landlord may confirm the tenant’s financial stability.
• Deposits: Determine the amount of any initial deposit required at the agreement stage. This deposit is typically credited towards the first rental payment upon the signing of the lease.
• Conditions precedent: Specify any conditions that need to be fulfilled before the formal lease agreement becomes binding. For instance, the tenant may require certain modifications to the property, and these need to be outlined clearly.
• Legal advice: It is important to seek legal advice during the Agreement for Lease stage to ensure that your interests are protected and that the terms align with your expectations.

2)      Lease Agreement

The Agreement for Lease generally contains the approved version of the lease.  Once the Lease is agreed and the conditions precedent are met, the parties proceed to the formal Lease Agreement. This is a legally binding document that governs the landlord-tenant relationship during the lease term. The Lease Agreement covers:

• Parties to the lease: It is important for a number of reasons that thought is given to the tenant entity and its directors. In most circumstances, directors will be required to provide personal guarantees. You should avoid making changes to your tenant entity after this process has commenced, particularly if the landlord has completed its corporate and financial due diligence on our nominated the tenant entity.
• Terms and duration: The Lease Agreement should clearly specify the lease’s duration, including the start and end dates. This is where you will decide if it is a short-term lease (example, one year) or a long-term lease (example, five years) with options for renewal.
• Rent and payment: Detail the rental amount, payment schedule (example monthly, quarterly), and any rent increases or escalations over the lease term. Define the method of payment and where rent should be sent.
• Security deposit: Clearly state the amount of the security deposit required, the conditions under which it will be returned, and any interest it may accrue.
• Maintenance and repairs: Define the responsibilities for maintenance and repairs. Typically, landlords are responsible for structural and common area maintenance, while tenants are responsible for the maintenance within their leased space.
• Insurance: Outline the insurance requirements for both parties. The tenant should usually have liability insurance, and the landlord should have property insurance. Specify who pays for these policies.
• Use and restrictions: Describe the permitted use of the storage facility and any restrictions or prohibitions. Ensure compliance with local zoning regulations and any industry-specific regulations.
• Termination and renewal: Detail the process for terminating the lease, including notice periods and any penalties for early termination. If there are options for lease renewal, specify the terms and conditions for exercising those options.
• Default and remedies: Define what constitutes a default under the lease and the remedies available to both parties in case of a breach. This can include eviction procedures, monetary penalties, or dispute resolution mechanisms.
• Access and entry: Clarify when and how the landlord can access the leased premises, ensuring that it aligns with your operational needs.
• Maintenance and make good: Throughout the terms of the lease, you may be required to maintain the premises. At the conclusion of the lease term you may be required to make good the premises – this is – bring the premises back to the state it was at the time the lease commenced. It is very important to consider how much maintenance and make good you wish to complete during the term.
• Special provisions: If there are any unique aspects to your lease, such as options to purchase the property or special clauses related to your specific industry, these should be clearly articulated.
• Legal review: Both parties should seek legal advice to review the lease agreement to ensure it is legally sound and fair to both sides.
• Execution: Once both parties are satisfied with the terms, the lease agreement should be executed by both the landlord and the tenant, and copies should be retained by each party for reference.

Seek legal advice

Leasing a transport storage facility involves legal agreements and financial commitments, making it essential to seek legal advice before finalising the lease. A legal expert can review the lease agreement, ensuring that it protects your interests and complies with Australian laws.

Signing the lease

Once all negotiations are complete and both parties are satisfied with the terms, it is time to sign the lease agreement. Ensure that you thoroughly read and understand every clause before executing the documents. Keep a copy of the signed lease for your records.

Conclusion

Leasing a transport storage facility is a critical step for businesses in the logistics and supply chain industry. The leasing documents are pivotal in this process. By understanding your needs, conducting thorough research, and carefully negotiating the lease terms, you can secure a facility that supports your operations and contributes to your business’ success. Seeking legal advice and adhering to all legal requirements are essential for a smooth leasing process. With the right storage facility, your business can thrive in the transport and logistics sector.

Contact us

If you are an Australian business or individual requiring advice on any aspect of leasing requirements for transport storage facilities, please contact a member of our Property or Transport & Logistics team.