Commercial Lease Agreement (including Retail)
Leasing law is biased against the Landlord. Fight back by getting your Tenant to sign a Commercial Lease. This Lease Agreement is suitable for all Australian commercial property. It also accommodates:
1. where the tenant is acting as trustee of a trust
Self-Managed Super Fund own 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.
The rules are stricter when your SMSF leases a commercial property to a member. This includes your 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
4. the trustee takes appropriate action to remedy breaches
5. sufficient evidence for the SMSF auditor and ATO that it confers no member advantage
‘Retail’ shop lease?
The law firm’s Commercial Lease:
* complies with the Retail Leasing legislation throughout Australia
* provides low-cost dispute resolution
* reduces unconscionable conduct claims against the Landlord
Commercial lease vs Retail Lease
In Australia, there are two types of leased properties: residential and commercial. To break that down further, commercial leases are either: ‘commercial’ or ‘retail’. Each State regulates both.
‘Commercial’ leases are for offices, warehouses and industrial sites. There is little ‘retail’ activity. A ‘commercial’ lease ignores rules that protect the tenant. The tenant and landlord have equal power.
However, ‘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 6 biggest owners. They are: Westfields, CFX, Federation, AMP, Dexus and Lend Lease. Therefore, in the interest of ‘fairness’, the ‘retail’ landlord’s powers are restricted.
But my lease is not ‘retail’
Be surprised. For example, an accountant, dentist and financial planner may have shop fronts. If they are, generally:
1. in a shopping centre (5 or more shops) and sell goods & services then they are ‘retail’ leases
2. not in a shopping centre then they are ‘commercial’ leases
To add complexity, each State has exceptions as to what is a ‘retail’ lease. For example, in NSW the lease is not ‘retail’ if:
(a) the shop’s lettable area is over 1,000m2
(b) the tenant operates the shop as part of its cinema, bowling alley or skating rink
(c) it is in an office tower which is part of a shopping centre
I don’t know which applies ‘commercial’ or ‘retail’?
Don’t worry. Our lease works for both ‘commercial’ and ‘retail’ leases. If the lease is ‘retail’ (or becomes ‘retail’ later) then the lease is read down to comply with:
Retail Leases Act 1994 (NSW)
Retail Leases Act 2003 (Vic)
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA)
Retail Shop Leases Act 1994 (QLD)
Fair Trading (Code of Practice for Retail Tenancies) Regs 1998 (TAS)
Retail & Commercial Leases Act 1995 (SA)
Leases (Commercial and Retail) Act 2001 (ACT)
Business Tenancies (Fair Dealings) Act 2003 (NT)
If the lease is ‘retail’ then the lease is read down to comply with the rules in each State and Territory. For example, if the lease is ‘retail’:
- the landlord provides a disclosure document seven days before the lease is signed. It summarises the lease. It also provides extra information about the shopping centre and all costs under the lease
- the tenant gets additional protection for any landlord unconscionable (unfair) conduct
- the cost of preparing the lease or mortgagee’s consent is paid by the landlord
- any rights of early termination or compensation under the ‘retail’ lease are preserved
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 in payment, the landlord recovers agreed on damages. A unique formula calculates damages in this Commercial Lease. This accords with the Court cases.
Landlord gains flexibility with waivers
Many lease agreements are not updatable. However, with our lease, the Landlord may alter the Commercial Lease, together with the Tenant. This suits changing needs. The Landlord escapes that obligation.
Why a Guarantor?
A Lease agreement is between two parties: the landlord and the tenant. Sometimes, a guarantor acts as a third party to give extra security to the landlord.
A guarantor co-signs the lease agreement with the tenant. The guarantor takes on 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 are not just the payment of rent. It includes such things as the cost of making good damage to the premises, default by the tenant and early termination of lease, the loss suffered by the landlord in reinstating and re-letting the premises, the cost of the reduction in rent if the premises are re-let on terms less advantageous to the landlord and legal costs for the tenant default.
It is an onerous responsibility.
A Landlord often wants another person to guarantee the performance of the tenant. Perhaps the tenant is just 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 not enough to secure them the desired lease.
Redevelopment and relocation clauses
Automatically, we put in a demolition and redevelopment clause into your Lease. It allows the landlord to terminate a lease early so you can carry out major works to renovate or redevelop the premises.
For more legal advice telephone us. We are a law firm. We can help you answer the questions.
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
39 Stirling Highway, Nedlands, WA
Mobile: 0477 796 959
National: 1800 141 612