Intro Nyst Legal director Brendan Nyst takes us through a beginners’ guide to
Q What are the key considerations that business operators should be mindful of when it comes to commercial leases?
A Most small- to mid-sized businesses lease their premises rather than owning them. So I’m often approached by local businesses for general advice on commercial leases.
For those new to the process, when negotiating a lease for a business premises, the most important considerations will usually be:
What is your monthly rent?
What are your monthly outgoings?
What is the term, or duration, of the lease, and what, if any, options to extend are available?
What, if any, security does the landlord require?
What insurance are you required to keep?
What, if any, incentives are on offer, such as a rent-free period or fit-out investment?
You should always try to have those essential terms negotiated before formalising the agreement. Of course, a written lease contains many more terms, which will ultimately need to be agreed to.
When meeting with your lawyer, inform them of any matters of particular importance to you to ensure they are included in the lease document — particulars such as who is going to be responsible for maintaining the air-conditioning, how many car parks the lease entitles you to, and what the rules around assignment of the lease are.
Remember, you’re likely to be in that premises for years to come, so it’s important you’re 100 per cent happy the lease addresses all of these matters.
The landlord’s solicitor will usually produce a draft lease at first instance, which will use the standard terms the landlord wants to apply. This is where you should seek advice from your lawyer. Naturally, all landlords are primarily concerned with their own position, and as a result they’ll often try on conditions, which can be burdensome on the tenant. So don’t be afraid to request amendments if you’re not 100 per cent comfortable with the terms.
Remember, if a dispute ever arises between you and your landlord, the lease will dictate who gets what and how the dispute will be settled. So make sure you’re happy your interests are covered from the outset. If you’re aware of other premises the landlord leases out, you might want to review any earlier registered leases, just to see what terms the landlord has previously agreed to.
Ensuring that you get your lease right from the outset could make all the difference years down the line.
Registering your commercial lease
The general rule here in Queensland is that leases of more than three years are required to be registered with the titles office. Leases of three years or less are known as ‘short-term’ leases, and there is no requirement for them to be registered. Obviously, the question of whether you take a short-term or long-term lease will be a matter of commercial negotiation between you and the landlord. A longer lease means a greater financial commitment to your business, but on the flip side it will also give greater continuity and therefore potentially more value to your business.
From a tenant’s perspective, it will often be preferable to have your lease registered, regardless of its term, so that any third parties seeking to deal with the property will know you have a right to occupy that part of the premises. The purpose of registering a lease is to give the general public notice of your particular leasehold interest.
It’s the same reason your bank registers its mortgage over your home. So if someone is interested in purchasing the property, they will know immediately that they are purchasing a property with a tenant.
Having said that, even if a lease is for more than three years and is therefore required to be registered, a failure to register the lease won’t ipso facto render it void. The landlord and the lessee still have an agreement that each of them can enforce against the other party. A failure to register merely results in the tenant losing indefeasibility of title, meaning that, for instance, should the landlord sell the property without giving notice of your tenancy to the buyer, you will be unable to enforce your lease against the new owner.
Brendan Nyst is Director and Head of Commercial, Property, and Dispute Resolution & Litigation at Nyst Legal