Entering into a commercial lease is a significant business decision as it requires a big commitment of both time and money. A commercial lease can be one of the largest obligations a small business may undertake, so the Queensland Government has put in place certain safeguards to protect and inform tenants during the leasing process.
A key safeguard is the requirement for the tenant to obtain both a Financial Advice Report from a qualified accountant and a Legal Advice Report from a qualified lawyer. This is required for all tenants with less than 5 retail leases.
These reports must be provided to the landlord (generally, the Landlord's solicitor) prior to execution of the lease.
What is a Financial Advice Report?
A Financial Advice Report is a declaration prepared by a qualified accountant and signed by both the accountant and the tenant. The declaration confirms that the accountant has reviewed the lease and explained the financial obligations of the lease to the tenant.
Why is it required?
These reports are designed to protect small businesses and ensure tenants are entering into commercially viable leases. It is essential that tenants understand their obligations under a commercial lease to ensure they are confident in their understanding of the commitment they are making. An important part of any decision on a lease is determining whether the proposed business activity can support the rent payments and other outgoings under the lease. Getting solid advice from an accountant and a lawyer will help minimise risks in the long term.
What is the process?
The accountant will need to first review the lease and supporting documentation, then meet with the tenant to explain the financial provisions and obligations under the lease. The key areas to be reviewed and explained are as follows:
- Rent and outgoings
- Rent reviews
- Terms of the lease
- Appropriate accounting systems
- Cash flow forecasting
- Taxation requirements
Once all these key areas have been covered, both the accountant and the tenant sign off on the Financial Advice Report to confirm the necessary advice has been provided and understood.
The tenant then provides the Financial Advice Report to the landlord or the landlord’s solicitor.
How we can help?
If you are a new or existing business looking to sign a commercial lease, you need an accountant on your team. The Financial Advice Report is a basic necessity for a lease, but there is a lot more value a great accountant can provide at this point in a business owner’s journey.
Reach out to Link Advisors if you need assistance with a Financial Advice Report or guidance around a commercial lease.