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leases

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It is important that there is a fair balance between the interests of the parties when negotiating a Lease. Each party should have as much information as possible about the other's intentions, expectations and needs in relation to the property the subject of the Lease.

Parties need to ensure that there is certainty in their obligations and rights. The parties need to have measure of certainty in their negotiations to enable them to properly budget and plan for the future of their respective enterprises Uncertainty in a lease may well mean a large expenditure by the landlord and the tenant in resolving any disputes that may arise during the term of the Lease.

Both parties must be prepared to put some time into negotiations at a personal level. Lawyers are often left to solve problems which could be easily solved by the parties.

We suggest that the parties to a Lease take time early in the negotiations to resolve as many potential problems as possible. The task is not nearly as difficult as many people believe. This is even more important in Leases governed by the  Retail Shop Leases Act because owners are not able to charge tenants the owner's legal costs of the negotiation and preparation of the Lease.

Lease preparation and content
You will find that most Legal firms have written their own leases.

A lease generally consists of 'fine print' running from 12 - 40 pages.

The fact that someone has had to draw (draft and type up) a document of this length is part of the reason that Legal fees for Lease preparation are high. It may have taken a Solicitor many weeks to put the Lease together and it must cover all types of potential problems. Clients and Solicitors simply cannot afford mistakes in the preparation of Leases so a Solicitor is obliged to devote a great deal of time to the preparation and checking of a Lease. This fact may not have been considered by clients when they are quoted a fee or they receive an account.

Considerable care has to be taken in lease drafting as by their very nature commercial Leases involve considerable financial outlay by all of the parties and as such involve a high level of care in their preparation.

Time required for documentation to be completed

1. A Lease cannot be prepared overnight. Due to the information that is required to be incorporated in each lease, Solicitors must have received proper detailed instructions from both the Tenant and the Landlord

2. The usual sequence of events is as follows:

   • A letting Agent or business broker will instruct the owner's solicitor to prepare a lease. (Leases for Retail premises require a Disclosure Statement containing full particulars of the premises, rents, outgoings, rent free periods & etc,  and a draft copy of the proposed  Lease are provided to the prospective tenant )

   • The tenant's solicitor inspects the Disclosure Statement and the draft Lease and where necessary negotiations held between the Solicitors for each party regarding any amendment of the Lease.

   • Once the terms of the Disclosure Statement are clarified and the amendments to the Lease negotiated the landlord’s solicitor is then instructed to complete the final Lease for signature by the parties.

   • The Retail Shop Leases Act  contains a 'pro-forma' Disclosure Statement. You  and your Letting Agent should be familiar with its contents before the negotiations with the prospective tenant. If possible a Copy of the disclosure Statement should be prepared in draft form by the Landlord or the Letting Agent, so as to save the costs of your solicitor preparing it.

   • Once the document is signed by all of the parties it is then submitted to the Office of State Revenue for the assessment of Stamp duty payable on the rent for the initial term of the Lease. This Duty is payable by the Tenant

   • After Stamping is completed, the Lease can then be lodged at the titles Office for registration if the term of the Lease requires registration , or if the parties require registration of the Lease.

   • For Leases of commercial premises (i.e. non retail) the procedures remain the same as above but a disclosure document is not required to be submitted to the Tenant.

   Steps to "smoother" leasing

   • Make sure that you know what is being leased - do you have an accurate plan of the property or the areas of the building that is to be leased

   • Have you got a blank copy of the draft lease yourself so you know what your Solicitor is going to offer a tenant? It is important that you also know the terms of the lease so as to avoid delays at the critical time when the tenant is trying to gain access tot he building!

3. Have you got a blank copy of a Disclosure Statement so that you can fill in the details before you discuss the lease details with your solicitor. The Lessor's Disclosure Statement can be downloaded from the Office of Fair Trading site at www.consumer.qld.gov.au

4. The preparation of an effective lease requires not only the signing of documents but also the consent of any lender which has a mortgage over the property being leased. Your Solicitor will prepare a standard form of consent  for signature on behalf of your lender.  Your Lender will have fees for obtaining such consent. Such fees are normally paid by the tenant.

   A lease for a term in excess of three (3) years must be registered at the Land Titles Office.

   If a lease is for more than 3 years then for the protection of both the owner and the tenant, then lease is required be registered at the Land Titles Office. You may if you wish, register a lease of Three years or less.

   • Before the Land Titles Office accepts a lease for registration it must be in a particular form as prescribed by State Legislation, and your solicitor will prepare your lease in the format required for registration

   • Where the area being leased forms only part of the land, then a plan in registerable form must be prepared and attached to the lease if it  is required to be  registered at the Land Titles Office. The preparation of such a plan requires the assistance of a registered surveyor. In the event that the lease is not required to be registered, a simple sketch plan of the area to be leased may be sufficient to identify the leased area

   • Once the plan has been prepared, lodged and registered at the Land Titles Office, then the registration of a lease is complete.

   Points to consider for  "smoother" leasing

   • The term of the Lease

   • What will the rent be?

   • Will there be an increase in rent?

   • What types of formula is used to adjust the rent?

     • a fixed increase of say 5% each year?

     • the market rent at the time of the review?

     • according to the Consumer Price Index? Yearly

     • will it be a combination of all these methods?

     • will it increase yearly or on the exercise of the option to renew the Lease

   • Will the tenant have an option for another term or may be two or three further terms after the expiry of the initial term?

   • What is to happen if the Government introduces new taxes which impact on the owner? Is the owner entitled to claim that increase from the tenant? If so, how much of the new tax?

   • If the tenant is in arrears in rent, is the tenant to pay interest?

   • If the premises are in a major shopping centre, the tenant will most probably be required to upgrade the shop every now and again to keep abreast with new shops in the centre?

   • Who is responsible for insurance if the roof is blown off in a storm or a take-away shop is burnt down when the grease in the exhaust system catches fire?

   • Who will replace the carpets or the fluorescent light tubes when they blow? And what about that blockage in the drain at the back of the shop?

   • And the list continues. We will not bore you further, but these some of the matters a lease will have to cover and the earlier you think about them in your negotiations, the easier the job will be for both parties!

   Many landlords have never read their leases and would not really understand why a tenant may be complaining about it. The landlord and the Tenant should know the content of the lease.

   Obtain a blank copy of the lease your Solicitor uses and see if it can be amended or produced in “Plain English” to make it more user friendly!