For Commercial Tenants

Almost every commercial lease will provide that before a lease can be assigned, the consent of the landlord must be obtained.   If  you have commercial premises associated with your business there are some very good reasons to make sure that the assignment of the lease is properly handled. We recently acted for a commercial tenant.  This client came to us with a big problem, which had only become obvious to them a year after the date of the sale of their business. The commercial tenant had sold their business a year earlier and had assigned the lease of the business premises to the buyer.  Things did not go smoothly. The landlord set out the conditions upon which consent would be given.

In our last article we described how it is necessary for a Queensland landlord to issue a form 124 notice before taking any steps to retake possession of premises from a tenant who holds those premises under a Queensland Commercial Lease. A commercial tenant will always have the right to apply to the courts for something called "relief against forfeiture".   The relief may be given even if the tenant is in default of the lease and even though the lease specifically provides that the landlord has the right to terminate. Courts have a wide and unfettered discretionary power to take into account all of the circumstances before deciding if the Court will allow a landlord to retake possession from a tenant.  Therefore a landlord may not have the ability to terminate a lease even if the tenant is in default. A tenant cannot claim relief against forfeiture before the landlord has commenced proceedings for possession or has taken possession. If the tenant anticipates that the landlord is making preparation to take possession then the tenant may apply for an injunction.  The tenant may do this once the section 124 notice is served. So how does the court decide if it will grant this "relief against forfeiture"?

Do you lease premises for your business? Many business owners do not realize that when they sell their business and assign their lease, they may remain liable to the landlord for many years after the assignment.  If the buyer (the new business owner) can't pay the rent then the landlord may come looking for the previous tenant to cover the loss.  Is that you?

Many leases actually provide that an assignment of the lease does not release the previous tenant from liability to the landlord. Don't despair!  Read to the end of this article where we make reference to some legislation that may assist if you are a retail shop tenant.

Many people wrongly believe that if an agreement is not put in writing they are not required to honour the agreement. This is incorrect (except for some exceptions, one of which is noted below).  A verbal agreement may be enforced by either party to the agreement regardless of whether that agreement is in writing.  So be careful what you agree!

The difficulty you may have guessed is, proving what was agreed.  Indeed we see many agreements, even written agreements that are very unclear. There is sometimes so little detail or, so little care taken, that it is difficult to know what the parties are intending.

If you are a business that rents premises then you should urgently have a lawyer check to see if your lease is secure.

In some areas of Queensland small commercial landlords might be under strain and business owners may as a result lose their business.  Below we have set out the steps that you can take to make sure that your business is not affected. Unfortunately  many leases in Queensland are not protected as Section 66 of the Land Title Act has been ignored or forgotten.   If the landlord is put into insolvency or bankruptcy then the commercial tenants may be in serious trouble.

A bank wanting to sell business premises does not necessarily want to keep the business in place, particularly if they believe that they can get a better deal with the tenant gone. This may be so if a buyer wants to redevelop or renovate or the buyer wants to occupy the property themselves.  

A tenant may have  no legal right to complain, if a landlord is charging "unfair" rent which is well above the amount that a valuer might say is market rent.  The lease determines the rent that is charged.  In better times a deal may be struck between the landlord and the tenant.  Over time circumstances and the economy may change.  Rent is not however determined by the rental market at any particular time.  Rental is determined only by the lease. But there may be other things which a tenant can do.

You may have heard the saying. "A row is never about, what a row is about".  In other words when people argue with each other, they often argue about the things which did not cause their initial dissatisfaction.  Watch yourself in your next argument with your partner.  Does the focus of that argument keep changing?  It is the same in law.

A dilemma which often faces commercial and retail shop tenants in Queensland is whether or not they should register their Lease with the titles office.

It is common in practice for the Tenant to bear the costs of and incidental to the registration of the Lease. This can include the costs of having a Premises surveyed and plans prepared, lodgement fees and requisitions. This can all be a very costly process.

The question that often confronts a Tenant is: do the risks associated with not registering the Lease justify the initial costs of registration?

So what are the risks?

I attended a seminar held by the Franchise Council yesterday. The speakers were Ralph Edwards and Phillip Chapman of Lease 1. A link to their website is http://www.lease1.com.au/contact.html

There were a number of good points made which have caused me to consider the process of negotiating a lease. We suggest that you always obtain legal advice before proceeding to any negotiation. Here are some suggestions:

1. Pressure on a tenant builds as the date for renewal approaches. Tenants are well advised to begin negotiations relating to obtaining new lease at least 12 months before the current lease expires. Institutional landlords are very organized and actively plan how they can get the best deal for their shareholders. Landlords know that without the lease there is no business.  As the end date approaches, pressure mounts on the tenant, so that the business is not lost. The tenant has more options while a significant part of the lease term remains and so this is the best time for a tenant to negotiate.

If you are a commercial tenant you probably already know that retail shop tenants have a higher level of protection than do other commercial tenants. A retail shop landlord is restrained from doing certain things.

You may be a retail shop tenant even if you do not operate a retail shop. It is essential that you are able to determine if you are entitled to the benefits of the act. A link to the Retail Shop Leases Act is set out here.

Landlords are not permitted to pass on the cost of preparing a lease to their retail shop tenant.

There are rules about the maximum proportion of outgoings that a landlord can ask a retail shop tenant to pay.

The landlord is restricted in the way that increases in rental can be imposed.

There are other benefits also.