Negotiating on behalf of the Landlord:
A Landlord would be ill-advised to have a commercial lease transitioned or commenced upon a basis protected by that Act where they do not need to. A Landlord is unlikely to voluntarily opt for their lease to be a retail lease, where it is not. Where it is located in an industrial or commercial precinct, the Parties can negotiate whether or not that lease is a retail or commercial lease, based on the tenants’ use of the tenancy.
Industrial premises within a clearly industrial precinct are generally safe from the Retail Leases Act but the characterisation of the use of that tenancy is what will characterise how the lease is treated. An option to purchase and an option to renew present pretty similar incentives to both Parties to a commercial or retail lease. An option to purchase will come with a way of reviewing the “market value” of that premises, and so is common in older commercial precincts. Clearly a benefit for the Tenant is that they can not only continue operation but depending on the option, can also consolidate commercial property for a potentially preferential value. And the Landlord receives a purchaser for their tenancy, where it is opted for or required.
Term and Rental Review
The term of a commercial lease is likely to be 3-5 years and may or may not have a renewal period. A commercial lease has no such restriction relating to which method of rent review can be used; but good practice generally requires a determinative rent review. The clear benefit here for each Party is that where the annual rent review is a fixed 4%, with a market review at the option, for a retail lease where the term may be 15 years – the increase rent is disclosed and determinable by the tenant. In commercial leases it is more common to see a fixed rate of 5% p.a. and if there is an option applicable, it will be based on CPI + 2%.
Outgoings
Outgoings are generally a contested point of any lease, whether commercial or retail. For commercial it is usually an easier process of the outgoings related to one-metred premises but can also often be up for debate. With a commercial lease, the landlord is entitled to retain so much of the deposit that was actually used by the landlords’ solicitors in preparation of that lease, and this same provision ought to be reflected in the letter of offer, or heads of agreement, or other documentation.
Navigating the complexities of leasing can be challenging, and when confusion arises, it’s crucial to seek professional guidance. Engaging the expertise of Baybridge can help clarify your rights and responsibilities, ensuring efficient resolution of any issues. Their in-depth knowledge can streamline negotiations and foster mutually beneficial outcomes for all parties involved.
The above is general advice only and should not be relied on as leghttps://baybridge.com.au/negotiation-of-lease-on-behalf-of-tenants/al advice. It does not take into consideration your individual circumstances or requirements.
Have you read negotiation of lease on behalf of the tenant.
This article was written by Racha Abboud, Partner, Jack Coles, Associate and Rita Ters, Lawyer.
