A lease is an agreement between two or more people whereby the owner of land grants a right to another person or company to occupy premises for a particular purpose. There are three main types of leases. These are Residential, Commercial and Retail. A lease should have the following:
- Description of the premises which is the subject of the lease;
- Outline the permitted use for the premises and any specific terms and conditions in relation to that use; and
- Establish the relevant dates relating to:
- Termination; and
- Any Hold-Over or Option period, if applicable.
Note: leases that are for a term of three years or more are required to be registered at NSW :Land Registry Services (formally known as the Department of Lands).
- Establish the rights and liabilities of each party to the lease, including such matters as:
- Which of the parties will be liable to pay for the fit-out, repair, maintenance and equipment;
- Any particular rights, liabilities, obligations that may be relevant to the nature and purposes of the lease;
- Outline any warranties and indemnities that may be specifically relevant to the terms of the lease;
- Outline the trading hours for a commercial or retail lease; and
- Outline any rights to sublet or sublease.
Note: some leases explicitly deny any right to sublet or sublease because the Landlord does not want third parties of which he is unfamiliar to occupy the premises.
- State the annual rent, rent review date and outgoings;
- Describe how any rent increase is to be calculated;
- State any optional terms such as:
- whether a bond is required, and the particulars thereof;
- whether a guarantee is required, and the particulars thereof;
- whether any insurance is mandated; and
- whether the lease can be assigned to any third party.
- Outline the terms relating to termination;
- Describe the process of dispute resolution; and
- State clearly which laws are applicable to the interpretation of the lease.
A retail lease is a lease defined in the Retail Leases Act 1994 (NSW) as covering premises not larger than a thousand square metres. Of course, the premises must be used for a retail purpose as well. Rentals and outgoings must be disclosed to a Tenant by the Landlord before the lease is entered into and the Landlord cannot demand that key money be paid by the Tenant. Moreover, the Tenant will not be liable to cover the Landlord’s legal expenses unless the Tenant requests amendments to the lease. In the event that the lease is for a period of less than five years, a certificate to that extent must be provided. Certain protections exist for the benefit of the Tenant in the event that the Landlord intends to relocate the Tenant or redevelop the site.
Commercial leases are leases for a commercial purpose, but unlike retail leases, commercial leases are not governed by the Retail Leases Act 1994 (NSW). This does not mean however that there are no laws that relate to the liabilities and rights of parties that enter into commercial leases. The common law is a body of decisions of Courts which may form legal principles that affect the relationship between Landlord and Tenant in commercial lease disputes. The general principles of contract law, and any legislative provisions that relate to them, may also be of assistance in resolving disputes of this nature.
Potential disputes can arise for Landlords across various legal matters concerning leases. Some of the more common areas are addressed here (the following list is not exhaustive, but represents a selection of matters that can become problematic between Lessors and Lessees):
When entering into a lease with a Lessee, the Landlord may be required either by statutory or other mandate, to make various disclosures to the Lessee. The disclosure statement is a summary of the lease itself and any other additional and relevant information that the Tenant would need to make an informed decision as to whether or not to enter into the lease. The particulars of a Lessor’s disclosure statement are contained in Schedule 2 of the Retail Leases Act 1994 (NSW).
Making sure that a lease is drafted with care is essential to the interests of any Landlord. Terms that are ambiguous, vague or uncertain, or provisions that are harsh, unconscionable, grossly unfair, unlawful or illegal, may lead to conflict with the Tenant/Lessee and any disputes could end up in Court or the Tribunal. There is also some legal authority to suggest that where there is ambiguity in a document, then the document is to be interpreted against the person who drafted it. It is always best to avoid disasters by getting all drafting completed to the highest professional standard.
- General Legal Advice
For Landlords that are seeking to exercise a right under the lease (such as terminating the lease) but who are nevertheless uncertain about whether or not they in fact are entitled to exercise that right (for example, a condition must first be met but there may be a question as to whether this has occurred), it is important to seek legal advice before taking any action. Taking action rashly may result in serious liabilities and the Tenant’s right to terminate. If a Landlord conducts himself or herself in a manner which was not open to him or her, that could potentially lead to a claim for damages or compensation on part of the innocent party.
- Lease Disputes
Disputes involving leases are deal with under the “Lease Disputes” tab below.
- Termination for Breach
The Tenant’s default can give rise to the Landlord’s right to terminate for breach of the lease. Specific procedures may be mandated under the terms of the lease that require certain things to be done in due course of terminating the lease. These can include special provisions relating to notices, their form and manner of service. If these procedures are not observed, the Tenant can say that the lease was never legitimately terminated and any action taken on part of the Landlord may give rise to a claim being made against the Landlord. It is therefore important that proper advice be obtained in relation to when the right to terminate the lease arises, and if it does arise, what must be done by the Landlord to terminate without infringing on the rights of the Tenant himself.
- Options and their exercise
Landlords have certain obligations relating to the Tenant’s exercise of Options. If the Tenant does not exercise the Option properly, it can be declared void. However, the Landlord should be careful not to be in default of his obligations in these cases. Accordingly, it pays to seek legal advice on the terms of the Option before any decisive action is taken.
How a Lease can come to an end
A lease can come to an end in several situations, and this will depend on the circumstances of each individual case. Terms, conditions and warranties are likely to differ, sometimes widely, from one lease to another. Termination rights will usually (but not always) arise in either of the following cases:
- The term of the lease has come to pass and there is no Option clause or Hold-Over period;
- A party has breached an essential term of the lease which constitutes fundamental breach and allows the innocent party to terminate;
- A party unjustifiably repudiates a lease, giving rise to the innocent party’s right to rescind; and
- A term of the lease allows termination given a certain condition is met or certain conditions are met.
A dispute may arise where a party claims that it has a right to terminate, whereas the other party objects to the exercise of that right (or may even dispute that the right is exercisable under certain circumstances). Disputes may also arise in relation to the interpretation of options and hold over provisions. It is important not to act impulsively when a party is in these situations, because acting on what one may think is one’s right may in fact constitute a breach of the lease, which may have serious consequences. It is important that proper legal advice from a commercial leases lawyer be obtained before any action is taken to resolve problems that arise under leases.
Disputes invariably arise in relation to some leases, particularly if there is a question concerning the proper interpretation of certain provisions in the lease document. Often, disputes can centre around when a party to a lease has a right to exercise a particular right that may be contingent or conditional on some other thing or event occurring. Sometimes a collateral agreement may impact or affect the rights of parties to a lease, and these matters will also have to be taken under consideration before any action is taken to resolve any problem that arises between the Lessee and Lessor.
For retail leases, parties can go to the Retail Tenancy Unit for alternative dispute resolution before the matter is heard in the Retail Leases Division of the Administrative Decisions Tribunal. In any event, it is prudent to seek and obtain proper legal advice and representation from a commercial lease lawyer, as lease documents may be very confusing. The law itself may impose implied obligations that parties to the lease may not foresee or understand clearly. While it is always a good idea not to delay action to resolve any problem, for these reasons it is best not to act rashly, without appropriate legal guidance.