10 steps for landlords for a favourable lease:

Here are some valuable steps that you should consider before you enter into a lease.

Contact us to ensure your new lease is the best fit for your premises.


LEGAL ADVICE:

Seek legal advice as early as possible so that you ensure full compliance with the law. In retail leases, be careful as you must comply even as early as the negotiation phase or you could be in breach and penalties may apply.

SEARCHES:

Perform searches to see if the tenant is reliable and solvent. As a minimum, we suggest a bankruptcy and company search. The company search will also ensure the correct people are signing as directors and or secretaries.

NEGOTIATE:

Ensure you negotiate before agreeing terms. Have your solicitor assist you from the beginning. You could save money by taking into account the tips listed here.

Lease negotiation topics to consider include:

SECURITY:

You can request a cash bond or bank guarantee from the tenant. Certain states require that the cash security be deposited within a scheme. If there is a dispute about the bond, it could be held by the scheme until the matter is resolved.

“It is advisable that you request personal guarantees to an unlimited amount if the tenant is a company. A personal guarantor could be a director/secretary of the company.”
OUTGOINGS:

You have the right to make the tenant pay for outgoings including rates, taxes and levies, and water and utilities. Once negotiated it needs to be clearly documented.

INCENTIVES:

To secure the tenant you may provide an incentive including a rent-free period or monetary contribution to assist with the tenant’s fit-out. We suggest that this incentive is conditional upon compliance with the terms of the lease. Therefore, if the tenant is in breach, they will need to repay the incentive either wholly or proportionately.

SOLICITOR COSTS:

Who is paying for your solicitor costs?

  • Commercial Lease: It is generally accepted that the tenant pays all legal costs associated with the lease.
  • Retail Lease: You can only request that the tenant pay for solicitor costs associated with making any amendments to the lease, and not for the lease preparation.

AGREED TERMS:

It is recommended that all agreed terms of the lease are documented prior to drafting the lease. This document should be set out in point form under appropriate headings and signed by the parties to save time and avoid confusion before drafting the lease.

COMPLY WITH RETAIL LEASE LAW:

Some items that you will need to consider when agreeing lease terms include:

Provide documents:

In some states, it is advisable that as soon as you commence lease negotiations you should provide the tenant with a copy of the draft lease, a disclosure statement and in NSW a copy of the retail tenancy guide at least 7 days before a new retail shop lease is entered into. Failure to do so can result in breaches of the law which can result in penalties and the ability for the tenant to void all or part of the lease.

Fit-out:

The tenant is generally liable for works you complete on the premises that enable their proposed fit-out. It’s important that the specification for the works are clear. In NSW, the retail legislation provides that the tenant will not be liable to pay more than the maximum amount (or a formula for its calculation) agreed in writing for the works before the lease is entered into.

Minimum term:

Some states may have a mandatory minimum lease term (e.g. 5 years). If the terms you put in the lease is less than the mandatory minimum, the term will automatically be extended to comply.

“Each state has its own law when it comes to retail leases. Ensure you obtain legal advice relevant to your state so you are not in breach of the law.”

REPRESENTATIONS:

Either party can be made liable to the other for damage suffered by a party entering into a lease as a result of false or misleading representations by the other party. Take care that the statements and representations made are correct and true at the time they are made.

DRAFT LEASE:

When providing the draft lease ensure that you do so on the basis that you are not bound until the lease is signed by both you and the tenant. This way you reserve the right to change the draft lease if necessary.

OTHER REQUIRED DOCUMENTS:

Ensure that the lease is signed by the appropriate entity. If the lease contains a guarantee then ensure the guarantor signs the relevant section in the lease otherwise they may escape liability.

“Do not allow the tenant to take possession until you have obtained all the required documents and rent up front.”

In addition to the signed lease, you will generally require the tenant to also return:

For retail leases
  1. Cheque for registration of the lease;
  2. Cheque for solicitor fees. The only fees that you can claim are for amendments made to the lease and not for drafting the lease itself;
  3. Signed Lessor’s Disclosure Statement;
  4. Signed Lessee’s Disclosure Statement;
  5. Bond or bank guarantee. Ensure that the correct name and premises is noted on the bank guarantee otherwise you may not be entitled to claim on it at a later date; and
  6. Certificate of Currency (copy of insurance in the correct name and premises).
For commercial leases
  1. Cheque for registration of the lease;
  2. Cheque for mortgagee’s consent fee;
  3. Cheque for your solicitor fees;
  4. Signed associated documents such as Agreement for Lease;
  5. Bond or bank guarantee. Ensure that the correct name and premises is noted on the bank guarantee otherwise you may not be entitled to claim on it at a later date; and
  6. Certificate of Currency (copy of insurance in the correct name and premises).

REGISTER THE LEASE:

If required, you must register the lease. Once received back from the registering office, you must return the lease you signed to the tenant. Depending on the state, you may have a time requirement on when you must return the signed lease to the tenant.

END OF LEASE:

At the end of the lease the following will generally occur:

  1. It is commonly the responsibility of the tenant to return the premises to the condition it was before the uptake of the lease excluding fair wear and tear (‘make good’). This must be clear in the lease otherwise it can be expensive if you need to return the premises in its original condition.
  2. You are required to return the cash bond or bank guarantee back to the tenant, provided there have been no disputed breaches. Where there has been a failure by the tenant to pay rent or comply with other terms of the lease, the landlord must ensure that it handles the breach quickly and carefully.
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