Commercial or Retail Leasing
Each year, many Australians lease commercial or retail properties.
A Lease is a type of legally binding contract which defines the rights and obligations held by the property owner (landlord) and the person or entity (tenant) who is renting said property.
The Tenant acquires exclusive possession rights to the land in exchange for rent and other promises made to the Landlord.
Entering a Lease
Most people enter into commercial or retail leases buy wat of “Letter of Intent” which sets out the fundamental terms relating to: start date; period of lease; estimated floor area; names of landlord and tenant; annual rent; lease period; option period; read escalation mechanisms; and guarantee requirements.
The Letter of Intent is generally presented as an offer by the prospective tenant to accept the lease on the stated terms. When then countersigned by the prospective landlord, the terms in the letter of intent become the terms of the formal lease. However, the signed letter of intent is not the final document used as a legally binding lease because many terms and obligations can’t be included in a mere letter of intent.
Terms of a Lease
Though leases are not required to specify a precise floor area unless the lease is going to be registered, most leases will still specify an accurate floor area. Some rents will be determined by square metre, so exact property size may be of great importance to the lease.
Most leases last for a period of three or five years and once a lease is entered into, the tenant is required to pay rent for the entire term regardless of whether they use the property for the full term.
A Commercial Lease generally relates to property which is used as a warehouse, industrial site, or an office building with no retail activity. Because no buying or selling to the public take place on commercial property, commercial leases are not covered by retail legislation. In a commercial lease, tenant liability is determined by their ability to negotiate when forming contract terms.
A Retail Lease, on the other hand, generally relates to property upon which goods are bought and sold to the public and is usually located in a shopping center. These properties are covered by state-based retail acts which differ across the country. Some states have area-based or time-based exceptions to the retail lease rules, which is why it is imperative to seek legal advice in your state of residence if you have any lease related questions.
Three Key Distinctions Between Retail & Commercial Leases
- Disclosures of Information: In most states, landlords are obligated by retail lease legislation to provide their tenants with a disclosure document seven days or more before the lease is entered into. If the landlord fails to properly disclose information, a tenant will have the right to terminate the lease even after it has been officially entered into.
- Disclosure Documents summarize the terms of the lease, all costs payable under the lease, and any additional information about the shopping center in which the leased property is located.
- Unconscionable Conduct & Misleading or Deceptive Conduct: Retail lease legislation also provides tenants with additional protection from landlord misconduct.
- Lease Preparation Fees: In most states, a landlord in a retail lease is not permitted to charge their tenant for lease preparation or mortgagee consent expenses. In a commercial lease, however, landlords and tenants typically negotiate these fees.
Disputes or Breaches?
Regardless of whether you find yourself a landlord or a tenant, disputes can arise for a number of reasons. Though potentially stressful and costly, there are ways to minimize the damage but it requires both parties to have a working understanding of the terms of the lease. This means that you will be best served by seeking legal expertise right away. Many breaches or contract disputes can be settled with a lawyer’s assistance before ever going to court, though a lawyer will be able to defend your rights at trial if other methods of resolution fail.