Commercial Lease Agreement

Commercial Lease Agreement

Leasing law is biased against the Landlord in Australia. Fight back by getting your Tenant to sign a Legal Consolidated Commercial Lease. This Lease Agreement is suitable for Australian commercial property. It also accommodates:

1. where the tenant is acting as trustee of a trust
2. guarantors

The law firm’s Commercial Lease:

• provides low-cost dispute resolution
• reduces unconscionable conduct claims and attacks against the Landlord

Commercial lease vs Retail Lease

In Australia, there are two types of leased properties: residential and commercial. Commercial leases are either ‘commercial’ or ‘retail’; each relevant state and territory regulates both.

‘Commercial’ leases are for offices, warehouses and industrial sites. There is little ‘retail’ activity. A ‘commercial’ lease does not require the draconian laws that ‘retail‘ properties suffer. This is because:

• The law sees a balance of power between the landlord and the tenant for commercial leases.
• Whereas, for retail leases, the government believes that the tenant has less power than the landlord.

This is supposedly because ‘retail’ tenants are at the mercy of the big shopping centre owners. Shopping centres control 38% of Australian retail space. There is $45B of shopping centres in the hands of the six biggest owners. They are Westfields, CFX, Federation, AMP, Dexus and Lend Lease. Therefore, in the interest of ‘fairness’, a ‘retail’ landlord’s powers are restricted.

You are building only a Commercial Lease. This is not a Retail Shop Lease. If you need a Retail Shop Lease, telephone us.

Subletting in a commercial lease

A sublease occurs when the tenant rents out all or part of the premises to a third party. Ensure your commercial lease agreement addresses whether subletting is allowed. Many landlords require the tenant to seek written consent before subleasing. This protects the landlord’s interests and maintains control over the use of the premises.

The Tenant has no authority to sub-let under this Lease. This is unless the Landlord and Tenant mutually agree. The ‘waive and variation’ clause permits subletting and assignment – but only with the Landlord’s consent.

Landlord protected from Damages

If the Tenant defaults on payment, the landlord recovers the agreed-upon damages. This commercial lease uses a unique formula to calculate damages, which is in accordance with Court cases.

Landlord gains flexibility with waivers

Many lease agreements cannot be updated. However, with our lease, the Landlord and Tenant can agree to vary any of the terms of the Commercial Lease. This suits changing needs over the years. An email exchange can update the lease.

Why a Guarantor in a Commercial Lease?

A Lease agreement is between the landlord and the tenant. Sometimes, a guarantor acts as a third party to provide extra security to the landlord.

A guarantor co-signs the lease agreement with the tenant and assumes the tenant’s financial and other obligations under the lease.

What is a Guarantor?

The guarantor in a Lease agreement adds and signs their name to the contract. The guarantor agrees to pay if the tenant is not able to pay the rent. Specific clauses of the lease outline the responsibilities of the lease guarantor. These include when payment is to be made and other responsibilities.

A guarantor stands in the shoes of the tenant. Whatever the tenant fails to do under the lease, the guarantor must now do. The guarantor agrees to guarantee all of the tenant’s obligations under the lease. These obligations include:

• Payment of rent.
• Cost of making good damage to the premises.
• Covering defaults by the tenant.
• Compensating for early termination of the lease.
• Loss suffered by the landlord in reinstating and re-letting the premises.
• Cost of the reduction in rent if the premises are re-let on terms less advantageous to the landlord.
• Legal costs for tenant default.

It is an onerous responsibility.

A Landlord often wants another person to guarantee the tenant’s performance. Perhaps the tenant is a company with no assets.

Landlords often demand a guarantor when the tenant has little income or assets. Perhaps the tenant’s income or credit score is insufficient to secure the desired lease.

Dealing with Early Termination in a Commercial Lease

Life and business are unpredictable. Both parties benefit from a clearly defined early termination clause. Common elements include:

• Break Fees: Compensation payable to the landlord.
• Notice Periods: Reasonable timeframes for informing the other party. A well-drafted clause balances the interests of both the tenant and the landlord.

Tenant gives Power of Attorney to Landlord

When the lease is over, the Tenant is gone. But what if the Tenant put a caveat on your property? The POA helps remove the caveat and other encumbrances.

Addressing Repairs and Maintenance in a Commercial Lease

Repairs and maintenance clauses often cause disputes. Legal Consolidated clearly states who is responsible for maintaining various parts of the property. For example:

• Structural Repairs: Typically, the landlord’s responsibility.
• Non-Structural Repairs: This usually falls to the tenant. A clear allocation of these duties reduces disagreements and protects the landlord-tenant relationship.

Including a Rent Review Mechanism

Commercial leases often span multiple years. We allow you to include a rent review clause to ensure the rent remains aligned with market conditions, including:

• CPI Adjustments: Linking rent to inflation.
• Market Reviews: Adjusting rent based on prevailing rates in the area.

The Importance of Permitted Use Clauses in Commercial Leases

The permitted use clause defines the tenant’s activities on the premises. For example, a retail store may not operate as a café without explicit permission. Landlords must ensure the permitted use aligns with zoning regulations, while tenants need flexibility for their business operations.

Self-Managed Super Fund leasing commercial property?

What is the sole purpose of your Self-Managed Superannuation Funds (SMSF)? By law, your SMSF only benefits retired members. Take care that a member does not accidentally benefit from the SMSF. There are special issues when an SMSF owns and rents out commercial property to a ‘related party’.

The SMSF rules are stricter when your SMSF leases a commercial property to a member, including the member’s family and business.

Our Commercial Lease complies with the Superannuation law, including:

1. a compliant written lease agreement
2. an arm’s length transaction – the trustee cannot give ‘special treatment’ to a related party through a lease for commercial property. E.g. rent is at a market rate etc…
3. the requirement for duly paid rent, according to the terms of the Commercial Lease
   • the trustee takes appropriate action to remedy breaches
4. evidence for the SMSF auditor and ATO that it confers no member advantage