Leases – What you need to know
Most people who own property are aware that if they want to allow someone to use their property on a permanent basis, then they require a lease between themselves (“Landlord”) and the person or corporation occupying the property (“Tenant”). This occurs if it is a residential property such as a home or apartment in which people live, or a commercial property such as a shop, office, factory or warehouse on which a business or other commercial activity is conducted.
“A lease is entered into or assigned when the tenant enters into possession of the premises with the consent of the landlord or starts paying rent, or the lease or assignment is signed by all parties, whichever occurs first.” (Information brochure – Victorian Small Business Commissioner)
The Lease is a legally binding contract between the parties and whilst it can be prepared by landlords themselves or estate agents, any legally binding document is best prepared by lawyers who have the legal experience and qualifications to understand what needs to be included in the lease document and what specific general or special conditions should be included or excluded to suit the circumstances. Unfortunately lawyers have also experienced many areas of dispute regarding the interpretation of lease documents, the state of premises and relationship between the landlord and tenant so they are well equipped to look out for any potential causes of dispute or confusion so as to ensure that the relationship between landlord and tenant in respect of each particular property is smooth and harmonious from beginning to end.
Commercial leases generally fall into two categories: Retail Leases and Other Leases. The best way to ascertain what is included in “Other Leases” is to distinguish those from Retail Premises Leases which are used wholly or predominately for the sale or hire of goods by retail or the retail provision of services. Most retail premises are covered by the Retail Leases Act 2003 (as amended) which commenced on 1 May 2003 and it’s Regulations, and which provides that the Retail Leases Act 2003 (as amended) does not apply to:
- Leases for a term of less than one year
- Tenants that are listed corporations or subsidiaries of listed corporations
- Tenants whose occupancy costs (the combined cost of rent and outgoings) exceeds $1 million per annum
- Premises that are used for non-retail activities such as wholesaling, storage or other such activities.
Retail Lease Act 2003 – Documentation and Facts
All tenants must be fully informed before entering into a lease and it is recommended that they obtain independent legal advice. The Retail Leases Act 2003 (as amended) obliges any landlord to make full disclosure of all information relating to the retail premises well before the tenant begins to occupy the premises.
Whilst the lease is a legally binding document between the landlord and tenant setting out the legal relationship between the parties and essential items, the disclosure statement goes further by including amongst other things the measurements of the premises, the fixtures and fittings owned by the landlord and forming part of the property, car-parking entitlements, specific dates for rent payments, rent reviews, lease expiry, rent-free periods, option dates etc. There are various options within the disclosure statement which relate to shopping centres, works to be undertaken by either of the landlord or tenant, proposed alteration works to the premises, marketing costs and any other representations made by the landlord or agent to the tenant during the negotiations.
Important Time Limits
- As soon as lease negotiations are commenced, a landlord or estate agent is obliged to provide a proposed tenant with a copy of the proposed lease and a copy of the information brochure provided by the Victorian Small Business Commissioner. It is an offence under the Act not to provide the proposed lease and information brochure.
- At least fourteen (14) days prior to the signing of the lease, the landlord must provide the tenant with a signed Disclosure Statement and a copy of the proposed lease.
- If the landlord gives the tenant the disclosure statement and proposed lease less than 14 days before the lease is to be entered into, the term of the lease is taken to commence 14 days after the disclosure statement and proposed lease are given to the tenant;
- If a tenant has not been given the disclosure statement before entering into a retail premises lease, the tenant may give the landlord, no earlier than seven (7) days and no later than 90 days after entering into the lease, a written notice that the tenant has not been given the disclosure statement;
- The tenant may give the landlord a written notice of termination at any time before the end of 7 days after the landlord gives the tenant the disclosure statement.
- Within 28 days after the retail premises lease has been signed by the tenant, the landlord must give the tenant a copy of the lease which has been signed by both the landlord and the tenant. If the landlord contravenes this, the tenant may give the landlord a written notice of termination at any time within the 28 days after the tenant is given a copy of the lease signed by the landlord and the tenant, or entering into the lease, whichever happens last.