Commercial Leasing for Landlords

As opposed to legislation governing retail premises and residential tenancies, there is no specific law which governs general commercial leases, but they are still subject to the law of contract and unfair terms prevailing in Victoria, Australia. Therefore, it is vital to have an expert lawyer draft and review your lease and explain its implications on your future interests.

Applicability of Retail Leases Act:

There are certain statutory obligations that cannot be waived off when Retail Leases Act, 2003 is applicable to premises. Thus, you must determine whether Retail Leases Act, 2003 is applicable to the premises. It is not applicable when:

➝ The total occupancy cost exceeds $1 million, or alternative financial threshold defined by the regulatory authority.
➝ The tenant or its parent is a public listed company within or outside Australia.
➝ The tenant is an agent of the landlord.
➝ Exclusions or inclusions of specific industries by regulatory authorities or other factors like premises being above 3rd floor of the building or lease term is more than 15 years.
➝ The Premises used for barrister’s chambers or council activities, charities or religious purposes and other exempt categories.

Termination of commercial lease & make good obligation:

Most leases will have a separate termination clause which specifies the grounds or default by a tenant on which a lease may be terminated by the landlord. It is advisable to have a detailed condition report by an independent contractor to set the standard for what the tenant will require to do to ‘make good’ the premises when the lease expires. The ‘make good’ refers to returning the premises in the original state, subject to general wear and tear before the lease was signed. The lease should specify whether the tenant will bear the cost of repainting or removing installed fixtures.  Prudent landlords may also provide for a specific procedure to provide notice to the tenant before termination takes effect, giving the opportunity to the tenant to meet their obligation before actual termination. Grounds of termination of a lease may include:

➝ Non-payment of rent for a specified time

➝ Insolvency of the tenant

➝ Breach of obligations to carry out repairs or obtain proper licenses

➝ Breach of assignment and subleasing restrictions.

Recent ipso facto legislation prevents the activation of certain contractual provisions from being enlivened through a ‘trigger type’ event such as insolvency for example. You may wish to have our firm advice you on such changes to ensure you understand the implications of such changes.

Understanding security deposits, bonds, or bank guarantees

A security deposit is an amount of money paid by the tenant to the landlord as security for occupying the premises. It ensures a certain level of protection, if the tenant fails to meet their obligations under the lease. Landlords must also account for the interest earned on the deposit and is entitled to hold interest until the end of the lease. Security deposits usually range from one month to six months rent. This amount is not regulated and needs to be negotiated for each lease.

Prohibition on taking Key Money

Depending on your jurisdiction taking key money may be illegal. Key money is generally a premium or incentive paid to the landlord by the tenant or by the tenant’s agent. Seeking key money is prohibited under Retail Leases Act 2003.

Options and Renewals

  Most commercial leases will have an option to renew the lease or landlord may opt not to include such option in the lease. If there is an option to renew and the tenant requests renewal after having met their obligations in the renewal clause, the landlord will have to renew the lease. Prudent landlords may notify the tenant that their option is going to expire and thereafter, send notice that the option to renew has ceased. Your obligations to offer the option may also differ if the Retail Leases Act 2003 is applicable. In that case, you must provide option to renew at least six months prior to the expiry of the lease. If such option is not exercised the lease term may be extended by six months from the date of notice.

Avoiding confusion about payment of repairs and maintenance

To avoid any confusion regarding payment for repairs and maintenance, it is prudent to mention who is responsible for what in the lease itself. Some repair and maintenance obligations cannot be passed on to the tenant if the Retail Leases Act 2003 is applicable. When it comes to repairs and maintenance for retail properties, there can be confusion about who is responsible for what. You must understand your legal obligations and what you may need to do when there is a need for repairs or maintenance. Responsibilities of a landlord may include maintenance and repair of structures, fixtures, plant & equipment, appliances related to utilities and essential services. A tenant is responsible for keeping the premises in good condition subject to general wear and tear. Any failure to comply with your repair and maintenance obligations could result in tenant claiming damages for any loss or business suffered due to repair and maintenance issues. Prudent landlords may specify a timeline in which repairs need to be completed before any claim for damages arises.

Transfer & assignment

You may restrict or prohibit the transfer/assignment of the lease by the tenant or subject it to certain conditions. You may withhold transfer of lease in case the new tenant may not be able to financial obligations under the lease or the proposed use is not permitted. As a landlord you may withhold consent to transfer if tenant fails to meet their obligations specified in the lease.

Insurance

A lease may specify the insurances to be procured by the landlord as well as the tenant. You must also ensure that your insurer is aware of the tenant’s permitted use of the premises as this may affect your premium costs. Prudent landlords may procure insurances on behalf of the tenant in their name to prevent any variation by a tenant without landlord’s knowledge.

As a landlord of commercial premises, it is vital that the lease you offer embodies your intentions and interests while being compliant with laws applicable to your jurisdiction. We work with your landlords to protect their commercial long-term interests and aid them in avoiding disputes in a cost-effective manner.

We ensure that our landlords understand their obligations under a lease and can avoid any unforeseen commercial consequences. Whether you are a multi-property owner, commercial real estate investor or purchasing your first commercial property our team will work with you to provide solutions appropriate for your circumstances and needs. Our service offering includes:

➝ Advise on disclosure requirements, lease documentation and compliance with the Retail Leases Act 2003.

➝ Lease disputes & Payment disputes. Mediation & litigation.

➝ Outgoings, sub-leasing, renewal options and redevelopment advisory.

If you have a lease dispute or require legal advice as landlord you may contact us @1300 2 LEGAL