Definition
Commercial leases refer to contracts granting possession of the commercial premises such as office buildings and industrial sites by the lessor to the lessee for a certain period of time. Commercial leases are distinct from residential leases.
Typical Terms
A standard commercial lease includes the following conditions:
the parties, term and rent of the lease
the purpose for which the lessor is permitted to use the premises
the option to renew after the expiration of the prescribed term
rent increases mechanisms and review date
responsibility for the maintenance and repairs of the premises
responsibility for the payment of outgoings
renovation, alteration and improvements made to the premises
assignment, sub-letting and transfer of the lease
the consequences of and remedy for breach of lease terms and grounds for termination
insurance and liability for loss and damage to the premises
bank guarantees and security deposits
dispute resolution mechanism
implied covenants by law and statute (Conveyancing Act 1919 (NSW)) , subject to any express covenants
How to Protect Your Rights
Make the lease in writing
A commercial lease at market rent granting the lessee right of possession for a term with an option to renew (if any) not exceeding 3 years can be made orally pursuant to s 23D(2) of the Conveyancing Act 1919 (NSW), despite the requirement for writing under s 54A(1) and 23C(1)(a) of the Act.
Where the period of the lease exceeds 3 years, to give legal effect to the lease, the lease must be in writing.
Besides this, there are significant advantages to enter into a written commercial lease to avoid ambiguity in the agreed terms as well as potential disputes and costs in the future.
Have the lease registered
Under the Torrens system, commercial leases with a term in excess of 3 years must be executed in the approved form and registered to be effectual to pass the leasehold estate under s 41 and 53 of the Real Property Act 1900 (NSW).
Leases for a term including an option of renewal (if any) no longer than 3 years is not required to be registered. However, registration will confer the lessee an indefeasible right free from adverse claims pursuant to s 41 of the Act.
Vision Legal
Feel free to contact Team at Vision Legal on 02 9633 1322 for helpful advice and legal assistance in reviewing the Leases for you.
Topic 2: Retail Leases in NSW
Definition
Retail lease is a special category of commercial leases, applying to premises carrying out retail activities i.e. buying and selling to the public. Unlike ordinary commercial leases generally governed by the common law, retail leases are largely regulated by statute known as the Retail Lease Act 1994 (NSW).
Statutory Application
Premises used as a retail shop carrying on business under Schedule 1, for example, barbers and gift shops fall within the scope of the Retail Lease Act 1994 (NSW).
However, there are certain leases excluded by the Act where:
· the term (including an option to renew) of the lease is shorter than 6 months or longer than 25 years
· the space of the retail shop is greater than 1000 meter squares
· the business is operated by the lessee on behalf of the lessor
· the principal business is cinema, bowling alley, skating rink or operated for other excluded purposes under Schedule 1A
· the lease was entered into before 1994
Statutory Protection
The Retail Lease Act 1994 (NSW) provides extra protection for the lessee’s rights. It has a strict application and overrides any inconsistent provisions in the lease pursuant to s 7.
Removal of writing requirement (s 3)
An oral agreement will not affect the enforceability of a retail shop lease, which departs from the writing requirement under other land legislation.
Disclosure statement (s 11)
The lessor is obliged to provide the lessee with a disclosure statement at least 7 days before entering into the lease. A disclosure statement contains essential conditions of the lease including all payable costs. Failure to comply with this obligation will incur penalty and confer the lessee a right to terminate the lease within 6 months after the lease is entered into.
No key-money and preparation fees (s 14)
The lessee is to pay only the costs and expenses disclosed by the lessor. No key-money or lease preparation fees is permitted to be sought by the lessor. The lessor in contravention of the statue is liable to a penalty and recovery of any payment or benefit received.
Obligation to register (s 16)
To ensure the lessee obtain an indefeasible interest free from adverse claims such as claims made by a mortgagee or a bona fide purchaser, the Retail Lease Act 1994 (NSW) imposes an obligation on the lessor to register leases with a term including any option period exceeding 3 years, otherwise a penalty for statutory contravention will incur.
Maximum return period for bank guarantees (s 16BA)
The lessor must turn a bank guarantee within 2 months after the lessee has released its obligations under the lease. The lessee who suffers any loss or damage due to the failure by the lessor to return the guarantee within the maximum period is entitled to seek compensation from the lessor.
No ratchet clauses (s 18)
The lease condition which prevents or limits the base rent from decreasing according to the market change under a rent review is void.
Notice and compensation (s 35)
The lessor must give the lessee a notice at least 6 months in advance to terminate the lease for demolition of the building, otherwise the lessor is liable to compensate the costs of the lessee’s fitout.
Vision Legal
Feel free to contact Team at Vision Legal on 02 9633 1322 for helpful advice and legal assistance in reviewing the Leases for you.
