If you’re a business owner navigating the commercial lease market, maybe about the sign on the dotted line or just want to understand the basics of a commercial lease, this podcast is for you. In this podcast, Big Law director, Sylvia Lopez, talks about all things to do with commercial leasing in Queensland.
Transcript
At Big Law, we’re big on providing you great legal help. If you have a family law, business law, wills and estates, commercial law, or conveyancing issue, we’re here to help. Now, here is your podcast.
Dan: If you’re a business owner navigating the commercial lease market, maybe about the sign on the dotted line or just want to understand the basics of a commercial lease, this podcast is for you. In today’s episode, I’m talking with Big Lord Director Sylvia Lopez on all things to do with commercial leasing in Queensland. Sylvia, what is a CTA?
Sylvia: Dan, a CTA is a Commercial Tenancy Agreement. It’s a document that we see within the commercial space, although there is scope for a CTA to allow for a retail lease. It’s predominantly used in circumstances where you’re a landlord and you are looking to lease out or rent a space, and you can use this particular form, which is a form prepared by the REIQ, which is the Real Estate Institute of Queensland. So it’s a performer form that landlords and tenants can use when they’re entering into a rental agreement.
Dan: What about a commercial lease? What’s that?
Sylvia: Commercial lease is actually a bespoke document that you’ll get someone to draught for you. It operates in exactly the same space that a CTA does. So it’s a document that a landlord and a tenant will enter into when they’re entering into an agreement to rent some space. Again, it’s not a performer document. So it’s not a standard document that you can just go and get and complete the blanks. It is specifically drafted, and it is a longer, more fulsome document than a commercial tenancy agreement is.
Dan: What are the key differences between them?
Sylvia: As I mentioned before, CTA is a performer document, so it can be quite short, and it addresses the basic terms and conditions that you need to address in a rental agreement when a landlord and a tenant are entering into that type of agreement for commercial space or retail shop space. The main difference, though, is that one document, that is the commercial lease, can be registered on the title for your property. So leases that are for a term of three years or more need to be registered under the legislation at title’s office. And the benefit, particularly if you are the tenant of a landlord, registering the lease on title, is that anyone that has any dealings with that property has notice of the fact that you are a tenant there. And that is particularly critical if your lease contains an option to renew the lease terms. So quite often you’ll hear people talk about having a three by three year lease. And what they’re really saying is we’ve got an initial term of three years and a subsequent term of three more years if we want it. That becomes really critical if you’re, for example, operating a business out of the premises because it gives you security of tenure.
A commercial tenancy agreement cannot be registered on the title, and you cannot use it for a period that exceeds three years, including the option term. So it does have its limitations in that regard and in the level of protection that it can offer in terms of protecting your right of tenure in your option terms. The lease itself will also provide far more detail about the responsibilities and obligations of both the landlord and the tenant. So it just provides far more detail about each party’s expectations and therefore can give far more clarity throughout the term off the lease term as to what is intended between the parties. So it gives a far more detailed view of what parties obligations, responsibilities, and warranties are, as opposed to a commercial tenancy agreement.
Dan: It obviously begs a question, when should you use what?
Sylvia: Look, if your lease term is for three years or less, there’s absolutely nothing wrong with using a CTA, right? It’s cost-effective. There’s no argument about that. But in saying that, it’s the gaps that it leaves behind that can be problematic. So it lacks details regarding specific issues, or it doesn’t provide as full as conditions a lease can. And the things that I’m thinking off there are things like security bonds, guarantors, insurances, make good obligations, licencing of particular areas. So quite often, as a landlord, you will give the lease for the premises to the tenant, but you might have common areas like car parks where you don’t want to give tenure only to the one tenant. So you do that by way of a licence. Now, if you’re going to add those conditions to a CTA, then you might as well do the commercial lease and deal with all of those things in a more fulsome, less ambiguous way than you otherwise would with the CTA. But certainly, if you’re entering into a short term lease of three years or less, a commercial tenancy agreement may very well operate well for you. It’s a question of weighing up.
Do you spend some money up front putting in a very detailed document in place, or do you potentially end up in a dispute, either as a landlord or as a tenant, because it wasn’t clear or entirely clear what everyone’s obligations and expectations were under the lease.
Dan: Sylvia, are there particular benefits that may be for a landlord and a tenant?
Sylvia: Look, I think any document that gives certainty to the parties is a benefit to both of them. I think what you want to avoid is having gaps or ambiguity in a document because it ends up being expensive for both parties. So whilst there is an upfront cost, and look, I will say a commercial lease, putting aside retail shop leases, a commercial lease, the landlord gets a pretty good gig because the tenant can pay or can be asked to pay, and very often he’s asked to pay the landlord’s costs associated with the preparation of the lease. So from a landlord’s perspective, that’s pretty good because you can pass on that cost. And from a tenant’s perspective, it’s not the best because you end up wearing your legal fees and the landlord’s legal fees, although you can negotiate that. But it does just give certainty to the parties. And you put a document in place that takes into account all of your circumstances as regards to all of the things that are important to both a landlord and the tenant, and will hopefully ultimately save any arguments down the track when you get to the end of the lease term.
Dan: Sylvia, in saying all this, I’m assuming that getting some legal advice at the front-end is just critical.
Sylvia: Absolutely. You’re talking about documents that create quite a large obligation, monetary obligation over a long period of time. If you enter into a three-year lease and you look at what your annual rent is and what your annual outgoings are, then you add in your fit out costs, you make good costs, your maintenance costs. And quite often you’ll be asked to provide a personal guarantee as well if you’re a tenant, which means if your entity fails for any reason, you’re personally on the hook for those costs. Well, putting some money up front to get some legal advice just makes commercial sense at the outset.
Dan: Sylvia, if anybody has got a question, they can reach out to you and the team at Big Law.
Sylvia: Absolutely.
Dan: Sylvia, thanks for joining me.
Sylvia: Great. Thanks, Dan.
Thanks for listening. Need further information? Visit us at biglaw.com.au.
