We sometimes see Leases prepared by people who are acting for themselves in an attempt to save money, and we have found over the years that these Leases are not accurately completed and therefore expose either the landlord or tenant to significant risks down the track. Given the significance of a Lease to the tenant, as it is usually their business premises, and the landlord, as it is usually protecting an income stream, we believe that it is a fake economy to not have your lease prepared by an experienced lawyer.
Registering your Lease
If your Lease isn't registered, then both the Landlord and the Tenant are not fully protected.
If your Lease isn't registered and you are the Tenant and the Landlord becomes bankrupt, or sells the property, then the new owner may terminate the lease early. If your lease is registered and prepared appropriately then a new owner is required to comply with the executed lease.
If your Lease isn't registered and you are the Landlord and the Tenant goes bankrupt, or causes damage to the property, or fails to pay for rent or repairs, then you may find that you cannot enforce the terms of the Lease to recover those moneys, or you may find that your insurance company will not pay for the damage because you failed to properly secure your rights as Landlord.
Insurance - if you are paying for it you should be protected
Insurance contracts usually require that the Lease is properly and legally prepared, registered and enforceable before they will pay out on any claim. They usually also require you to have a proper managing estate agent and a proper contract with that agent before they will pay the claim.
There are other requirements for the insurance to cover the property, for instance very few insurance companies want to get involved with Licenses, but will only become involved with a Lease. This is not as simple as making sure that the title of the document says 'Lease'. Does the tenant have exclusive possession of a definable section of the property, and does the Lease adequately define what section of the property they have exclusive possession of? If the document states that they have exclusive possession, do they in fact have exclusive possession or do the documents not reflect the true situation. For instance, can they lock their part of the premises? Can they store property in their part of the premises?
This sort of mistake can result in both the Landlord and the Tenant being unable to make a claim on their respective insurance polices, and businesses do not need to be wasting money on insurance polices that do not protect them against anything. We have also seen cases where the real estate agent has failed to comply with the written terms of the agreement so that while in writing there was an agent appointed, in practice the property was not leased through an agent and so again the insurance company refused to pay the claim.
Personal Property and Securities Act
It isn't just the Department of Lands, now known as Land and Property Information, that you need to register your interests with.
If there are fixtures in the premises that are actually the property of the landlord and the landlord fails to register these “security interests” on the Register (PPSR) the landlord is exposed to the risk that either the tenant can sell the goods to someone and that buyer has a stronger claim to the items, or that the tenant could use the items as security to raise a loan from a bank/financier and the financier then has priority over the landlord in regard to the items.
In most cases the Tenant will need Council Approval for whatever they are intending to use the premises for. If the Tenant does not have Council Approval, or the Council Approval and the Lease are not in agreement about what the premises can be used for, then it is very difficult for either party to enforce the Lease against the other. Additionally the insurance policies would also need to agree with the intended use for the premises (in both the Lease and the Council Approval) to be enforceable.
It is often necessary to serve notices on the other party in order to enforce certain rights under the Contract, such as a notice about an increase in rent, or a notice exercising an option to renew. These notices are important and need to be completed and served correctly in order to be enforceable. The cost of loosing your business premises, or being unable to enforce an increase in rent, can be significant. The Lease should be prepared so that the method for service is plain and the appropriate information (such as the service address) is completed, and the notice itself should be completed in accordance with the Lease specifically and the legislation surrounding Leases generally.
Additional requirements for Retail Leases Act leases
These are additional requirements for Retail Leases Act leases, such as the requirement to separately serve certain disclosure documents upon a tenant prior to giving them the Lease, and the penalty for failing to do this could be that the tenant can walk away from the property. We have a separate article regarding Retail Leases that you can read by clicking on the blue link to the right.
What should I do?
Don't risk your business, or your income stream, by preparing your Leases yourself. Hamish Williams at our offices prepares many Leases a week, and he will pay attention to the details so that your investment is protected. He is approachable and efficient, keeping clients informed and being available when needed. Hamish has developed a good working relationship with clients and you will be pleased to save yourself a lot of paperwork. Contact our offices to make an appointment to see him today.
If you would like more information about our firm generally, or Leases specifically, you could read some more of our articles by clicking on the link to the right.