When it comes time to lease a commercial property, there are four key documents all commercial tenants must be provided. Whether you are a commercial property owner or lessee, it’s important to be aware of the legal requirements under the Act, which varies from state to state and is in place to protect all commercial tenants in Australia.
This post is intended to educate potential lessors and lessees by outlining the four main documents and the purpose of each. However, it is essential that all parties seek the appropriate independent legal and financial advice prior to entering into any legally binding agreement.
Things to Know Before you Lease a Commercial Property
The Act, applies to the majority of commercial and retail Leases in Australia with rent below $400,000 per annum. Whether or not your Lease is subject to The Act is determined by the use of the premises.
The following information outlines the four key documents that the landlord or lessor must provide to a lessee.
Document 1. Disclosure Statement
The Act dictates that all prospective tenants must receive a Disclosure statement from the property owner prior to signing their Lease. This document is a summary that outlines the important commercial terms and financial obligations of the proposed Lease including particular information about the property being leased. It covers topics such as: rent, outgoings, rent reviews and any other costs payment under the Lease, as well as any other important provisions of the lease.
What is a Disclosure Statement?
A disclosure statement is a written document that must be prepared in a specific format detailed in The Act. This statement covers crucial pieces of information concerning the leased premises, lessee’s financial obligations, and other important aspects of the contract between them. Both parties should consider the disclosure statement to be part of their legally binding agreement.
What type of Lease does a Disclosure Statement apply to?
The Disclosure Statement and The Act only apply to leases meeting the following criteria:
- The lease must have been signed after 30 November 1995;
- The tenant must sell goods or provide services to the public from the premises;
- Annual rent is under $400,000; and
- Lease duration is more than 1 month.
If a lease does not satisfy all the above conditions, then there is no need for the Landlord to provide a prospective Tenant with a disclosure statement.
What is an Acknowledgement of Receipt?
To confirm the disclosure statement has been delivered to the tenant, it is important for the landlord or agent to have the prospective tenant sign an Acknowledgement of Receipt.
Although signing the Acknowledgement of Receipt does not legally obligate the tenant to the Lease, it does protect against any potential claim from the tenant that they did not receive a disclosure statement.
Document 2. Agreement to Lease
The Agreement to Lease, also referred to as an Offer to Lease, is essentially a simplified, summary of the Memorandum of Lease, and outlines the terms and conditions of the Lease.
This document is used for the time between agreeing to lease a commercial property, and the premises being available for the exclusive use of the tenant. Between this time the Memorandum of Lease is prepared and executed by both parties.
The Agreement to Lease must be connected to a pro-forma Memorandum of Lease, since it binds the lessee to the provisions outlined in the Lease.
Document 3. Memorandum of Lease
There are two different types of leases that can be prepared – A Commercial Lease and a Retail Lease. Commercial Leases are most often used for warehouses, industrial sites or offices located in a commercial building. These leases are for businesses with no retail activity. Retail Leases are leases that apply to the Retail and Commercial Leases Act and are used for retail businesses/properties. The main factor that determines if a Commercial or Retail Lease is needed is if any form of buying and selling to the public will take place at the premises. The majority of the time businesses conduct a retail transaction of some sort, therefore in most cases, a Retail lease is prepared.
Once the potential lessee is given the disclosure statement, draft lease, agreement to Lease, and Retail and Commercial Leasing Guide for review, they can request changes to the draft Lease before it is officially prepared by the Lessor’s solicitor. This will likely increase the cost of the Lease preparation costs, which are payable by the Lessee, but may be still beneficial to the lessee if they can negotiate better terms.
It is important to have a Lease professionally drafted, and for the tenant/business owner to have their legal representative review all documents prior to signing them.
Document 4. Retail and Commercial Leasing Guide
The Retail and Commercial Leasing Guide (RCLG) is intended to inform potential commercial Lessees of their rights and obligations in everyday language.
The RCLG clearly outlines the various scenarios that may arise during a commercial Lease period and details the rights and obligations of the lessee and lessor in each particular situation. It also provides information on Lease documentation, Lease term, rent, rent reviews, market rent reviews, outgoings, bond, guarantees and Lease registration benefits, plus any other financial obligations covered in the Lease. It covers tips for each party on the condition of the premises and warranty of fit for purpose, permitted use or exclusivity, assignment, sub-leasing and relocation. There is also a section on dispute resolution, which may come in handy. At the end of the RCLG, there’s a helpful checklist for lessors and lessees plus a glossary of key terms.
This helpful document is available in PDF format, making it easy to download and keep on your computer or in the cloud for future reference.
Conclusion: Whether you are a commercial property owner, commercial tenant or a prospective lessee, it is vital to understand your legal and financial rights and obligations before agreeing to lease a commercial property. We trust this informative blog post has enhanced your understanding of what you need to provide or receive when leasing a commercial property in Australia.
To learn more about how to lease a commercial property, visit our website: www.commercialoffmarket.com.au.