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:
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.
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.
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.
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.
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.