Queensland Commercial Leasing – Part 2

Following on from last week’s Queensland Leasing – Part 1, there are further items for you to consider when negotiating a commercial Lease.

As discussed in Part 1, it is strongly advised that you obtain legal advice from a commercial property lawyer. Andrew Pine is a solicitor who has acted for commercial tenants and landlords in the Gold Coast and Brisbane.

 

  1. Assignment and Sub-letting

Should you wish to sell your business, it is common term of the business sale contract that you assign the Lease of the Premises so that the Buyer can remain in the Property as Tenant.

It is also common that the Lease will require Landlord’s consent prior to assignment of the Lease occurring. At law, this consent cannot be reasonably withheld by the Landlord. A good starting point is for you to obtain information from the Assignee as to how experienced they are in the particular field your business operates in.

Another suggestion is that the Tenant procure financial information demonstrating they are financially capable of servicing the Lease, so will not be at risk of defaulting on rent / outgoings payments payable under the Lease after assignment occurs. You should obtain legal advice in regard to the specific documentation which must be provided when you choose to assign the Lease. However for now, it is best for your lawyer to review the Lease to ensure you have that assignment right without having to rely on the legal principle that consent cannot be unreasonably withheld.

Subletting is another factor you should consider. You may wish to sublet all or part of the Premises in future. Advice from your solicitor on your ability under the Lease to do this would be prudent.

 

  1. External Signage

External signage may make up a big component of your advertising. Commercial leases often require that any proposal for a Tenant to install signage must not be acted on until the Landlord consents to it. This is often a sticking point when multiple businesses operate from a large building. It is therefore recommended that this point be discussed prior to the Lease being entered into.

 

  1. Use of the Premises

The Lease will define what the Landlord permits the Tenant to use the Premises for. The Tenant cannot go outside the parameters of this use without Landlord consent. It is also for the Tenant to enquire with Council prior to execution of the Lease as to whether Council actually permits the Premises to be used for the Tenant’s intended purposes.

 

  1. Repairs and Maintenance

The Lease should provide whether the Tenant or Landlord are responsible for maintenance. It is commonplace for the Tenant to be responsible for cosmetic and general wear and tear maintenance. Conversely it is usually the Landlord’s responsibility to conduct any structural or watertight maintenance.

 

  1. Termination or rent abatement by the Tenant due to damage

The Lease should provide the Tenant with rights in the circumstance where the Premises is damaged (through no fault of its own) so as to make it unfit for the Tenant’s intended use. It is commonplace for the Tenant to have the right to a rent abatement (where the tenant is not obliged to pay rent) while the Tenant cannot occupy the Premises (usually while the Premises is being repaired). It is also frequent for tenants to have the right to terminate the Lease if repairs to the Premises are not commenced by the Landlord within a certain period of time.

It is recommended you contact a lawyer to discuss your rights and obligations regarding termination or rent abatement.

 

  1. Refurbishment at the end of the tenancy

Commercial leases often require the Tenant to not only put the Premises in the same condition it was in at the commencement of the Lease, but also to refurbish, such as give the walls a new lick of paint. This is however a commercial term to be negotiated between the parties.

 

  1. Landlord’s rights when the Tenant defaults

Leases often split defaults by the Tenant into two separate categories:

  1. Serious defaults such as a failure to pay rent / outgoings or using the Premises for a purpose other than the permitted use. Serious defaults entitle the Landlord to give notice to terminate the Lease, enter the Premises and re-let it. The Landlord is then able to claim any loss from the Tenant.
  2. Minor defaults entitle the Landlord to merely recover damages.

How defaults are categorised (or even whether the defaults have separate categories) will depend on the terms of your Lease. It is recommended your lawyer study these terms carefully.

 

  1. Car parking

Car Park allocations should be clearly noted on a map which is included in the Lease. Any additional rent for these allocations should also be included.

 

  1. Personal Guarantees

Tenants are often companies or trusts. As these are not natural persons, the directors of companies or the trustees of trusts are often required to give personal guarantees. These personal guarantees protect the Landlord by ensuring that if the Tenant company/trust defaults on its obligations under the Lease, the Landlord is able to pursue the director/trustee in their personal capacity to recover any damages.

Your lawyer can advise you on your rights and obligations in regard to personal guarantees.

 

  1. Bank Guarantee

The Lease often requires the Tenant to provide the Landlord with a Bank Guarantee for a certain amount of money, usually equivalent to a certain number of month’s rent (and outgoings if applicable). This Bank Guarantee is essentially a bond the Landlord can ‘cash in’ if the Tenant defaults on its obligations under the Lease.

 

As mentioned consistently throughout this blog, it is strongly advised that you engage a solicitor prior to entering into a commercial lease, nor assuming any obligations of a commercial tenancy.

About Andrew Pine

Andrew Pine is a commercial leasing and property development solicitor practising in Queensland. Andrew is not qualified to give accounting or financial advice. This article is written solely as an opinion of the writer. This article should not be relied upon for legal, accounting or financial advice. You should always seek advice which is tailored to your individual circumstances.

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Queensland Commercial Leasing – Part 1

Queensland commercial leasing is underpinned by numerous pieces of legislation. This legislation imposes strict rights and obligations on both the Landlord and Tenant.

It is always recommended that you obtain legal advice from a solicitor experienced in commercial leasing. Andrew Pine is a solicitor experienced in commercial leasing throughout South-East Queensland.

Another reason you should obtain legal advice is that your solicitor must be able to advise you while having regard to your individual circumstances.

It is therefore recommended that you (or an Agent) discuss negotiate the commercial terms of the proposed Lease, then forward these terms to a lawyer who can draft the necessary documentation and advise you on the implications of entering into this documentation.

When negotiating a commercial lease, you should consider:

  1. Property (Premises) Particulars

Determine the address of the Property (Premises). Is the Tenant renting only part of the Premises (such as one level of a multi-level building, or even part of one level?). In addition, if possible, obtain the Title particulars (the Lot and Plan number, along with the Title Reference). If this cannot be obtained, your solicitor will be able to assist and should review the title in any event.

 

  1. Term of the Lease and Options to Renew

Determine when the Lease will commence and when it will end. If you are a Landlord, ensure the Premises will be in an adequate condition at the proposed commencement date. The Premises may also be covered by the Retail Shop Leases Act 1994 (Qld) which imposes obligations on you to disclose certain information, with a required time period after such disclosure before the Tenant can sign the Lease, let alone have the Lease commence. You should therefore discuss with your lawyer whether the Retail Shop Leases Act 1994 (Qld) applies to your Premises.

Given businesses often build up good-will as a result of trading from a particular Premises, Tenants often want the right (but not the obligation) to require the Landlord to renew the Lease at the end of the first term. This is called an Option to renew. Options must be outlined in the Lease and specify the length of team of each respective option. For example: the Lease may be for an initial term of 3 years, with the Tenant having two Options to renew of 3 years each. In such a circumstance, the Tenant could operate from the Premises for 9 years without the Landlord having a right to terminate the Lease.

Leases usually require Options to be exercised by the Tenant a few months before the expiry of the existing term. It is therefore recommended that you discuss the terms of your Option with your lawyer.

 

  1. Rent and Rent Reviews

Initial rent should be stated clearly in the Lease, as well as the dates that rent reviews will take place. The parties may also negotiate whether rent reviews will be a fixed percent, CPI, reviewed to market rent, or a mixture of the three. It is common for rent to be reviewed as a fixed percentage or CPI throughout a term of the Lease. However on the date one term expires and another starts (if the Tenant exercises its Option to renew), rent is often renewed to market rate.

 

  1. Outgoings and utilities

It is commonplace for Tenants to pay some, or all, of the outgoings for a Premises. Tenants often pay or contribute towards rates, water connection, body corporate levies, land tax various insurance premiums and glass breakage. Payment by the tenant of outgoings is of course a commercial negotiation and can vary on a case-by-case basis. If the Premises is part of a wider building, it is also common for tenants to pay a percentage of the wider building’s outgoings based on the square meterage of the Premises as a percentage of the square meterage of the overall building.

It is also commonplace for Tenants to pay for their own utilities, such as power, water usage, gas, public liability insurance and property insurance. Leases specify the various insurance policies the Tenant must take out, as well as the specific requirements each respective policy must have. It is recommended that your solicitor reviews these terms as they will be best placed to determine whether an insurer will be willing to provide you with a policy which is compliant with your Lease.

 

  1. GST

Ensure that the Lease clearly notes whether GST is payable in addition to rent. It is commonplace for GST to be payable in addition to rent. This is because most commercial landlords will be registered for GST. It is therefore advisable that you contact your accountant to discuss whether you should be registered for GST. You may be able to claim the GST you pay as a deduction, but this is a consideration for your accountant.

 

Further points to consider will be outlined in the next edition of this blog.

As noted throughout this article, it is strongly recommended that you consult a lawyer prior to executing any commercial lease documentation.

 

Andrew Pine is a property solicitor practising in Queensland. Andrew is not qualified to give accounting or financial advice. This article is written solely as an opinion of the writer. This article should not be relied upon for legal, accounting or financial advice. You should always seek advice which is tailored to your individual circumstances.