Whether you are a Landlord or Tenant concerning Commercial or Industrial Property, there are always a number of important things to ask prior to executing the final Lease. Below are a list of commonly asked questions (noting this is only specific to Victoria).
Q: Is my Commercial Lease and Retail or Non-Retail Lease
A: This question is one of the most commonly asked, both by Landlords and Tenants. It is important that this is correctly determined at the start of the Lease to ensure that problems do not arise throughout the term. The primary indicators that can be used to assess this is:
- Whether the Premises is wholly or predominantly used for the sale/hire of goods or supply or services; and
- Whether the Premises in anyway will be used to supply “the ultimate consumers” of the product or services.
You should note that this classification must be assessed on a case-by-case basis (as there are some exceptions to the above rules including whether publicly listed companies may be involved and the term of the Lease). The majority of Commercial Leases in Victoria will fall into the Retail Lease category. Examples may include cafes, hairdressers and food grocers. Some examples of non-retail may include some warehousing and some offices (noting both examples should be discussed with your lawyer to ensure that they are avoid being a Retail Lease).
Q: What is the difference between a Retail and Non-Retail Lease?
A: If the Lease is a Retail Lease, the Retail Leases Act 2003 (Vic) will apply. This Act provides Tenants with more protection, regulatory oversight and benefits compared to non-retail Leases. Examples of differences include:
- Landlords cannot seek land tax reimbursement from Tenants under Retail Leases;
- Landlords must supply Tenants with a Disclosure Statement prior to the commencement of the Lease and annual estimates of outgoings during the Lease. This includes various important information about the Premises;
- The minimum term (including options) under a Retail Lease is 5 years unless a waiver is obtained from the Victorian Small Business Commission;
- Less legal costs can be claimed from the Tenant by the Landlord;
- Clear guidance about exercising options to renew or transferring the Lease; and
- Clear guidance about the role of VCAT and the VSBC about dispute resolution.
Q: If I sell my business, can I transfer the Lease to the new business owner?
A: If the Tenant sells their business, then the Lease will almost certainly have to be transferred to the new owner. The mechanism for completing this transfer largely depends on whether the Lease is a Retail or Non-Retail Lease. If you are a Landlord and your Tenant seeks to transfer the Lease, there are narrow grounds for which you can refuse (refer to Section 60 of the Retail Leases Act 2003 (Vic)).
If you are a Landlord of a Non-Retail Premise, you arguably have more discretion when reviewing a proposed transfer. If you are a Tenant seeking to Transfer the Lease or an incoming Tenant, you should seek legal advice about the supporting documentation that should be provided to the Landlord that proves your credentials as a Tenant. Once the Transfer is agreed, final Transfer of Lease documents can be drawn up. Occasionally, these will include variations of the Lease as well (ie: greater security deposit for the new tenant).
Q: Can I vary, renew or end my Lease prior to the current term expiring?
A: Commonly, Tenants may seek to renew, vary or surrender (end) their Lease with the Landlord prior to the current term expiring. If you are seeking to do so, you will usually require a Deed that formalizes the agreement. If the Tenant is seeking to renew, a Renewal of Lease and Disclosure Statement will be drawn up by the Landlord. If the Tenant is seeking to vary or surrender the lease, these Deeds will usually include terms surrounding make good obligations at the end of the Lease, repayment of security deposits and potential releases for you as the Tenant and/or Guarantor under the Lease.
If you are a Landlord and your Tenant requests one of the above, you should seek legal advice about what should be included in the documentation and whether any of your costs can be claimed from the Tenant (this will depend on what the Tenant is seeking).
Q: What is an Agreement to Lease
A: Once an informal agreement has been reached between a Landlord and Tenant, the managing agent or solicitor may draw up an Agreement to Lease. This will usually include some of the essential terms that have been agreed for the benefit of both parties. It is essential for parties to realise that if the Agreement to Lease is detailed enough (ie: contains enough fundamental conditions), it can be construed as a Lease that is binding. Therefore, should you receive an Agreement to Lease, it is important to seek legal advice prior to signing.
Q: Can a Lease be signed when the Premises is not yet built?
A: It is possible for parties to sign up a Lease for a Premises that is not yet constructed. Naturally, if you are a Tenant, it is essential that you understand what is being constructed (ie: dimensions, services, finishes etc) prior to signing. Additional provisions will usually need to be included in Leases if the Premises is not yet built. This may include a floating commencement date and conditions around additional lessor works that may be required prior to the Lease starting.
Q: What are some common additional provisions in Leases?
A: Each Lease is unique to the Premise. However, many are often based on either the REIV or LIV Standard Lease, with Landlords then including additional provisions. Examples of when additional provisions may be required include:
- Rent-free periods for Tenants;
- Lease incentives from Landlords (ie: paying for fit-out, reduced rent etc);
- Requirements for fit-out/make good beyond the standard Leases;
- Specific clauses concerning the Premises itself (ie: building works, plans to demolish, plans to build next door etc); and
- Requirements about OHS at the Premises.
Many other conditions can be negotiated if required but naturally must be included prior to the final version of the Lease being signed.
If you have questions around leasing related issues, one of our leasing lawyers would be happy to have an initial no-obligation discussion with you to see if we can assist. Please contact us by e-mail or by phone on (03) 8658-0040 and we would be happy to discuss.
