Top Ten Tips for Land­lord Leasing 

This arti­cle con­tains some use­ful tips and insights on mat­ters of impor­tance for land­lord leas­ing. The infor­ma­tion is gen­er­al in nature and does not take into account any per­son­al circumstances. 

  1. Get your com­mer­cial terms in order

The doc­u­ment which sets out the agreed com­mer­cial terms of a lease has sev­er­al dif­fer­ent names: leas­ing advice, heads of agree­ment, agreed terms. The main aim of this doc­u­ment should be to cap­ture most, if not all of the agreed com­mer­cial terms between the par­ties before the lease draft­ing commences. 

The leas­ing advice should be as con­cise as pos­si­ble. Whilst a leas­ing advice is not usu­al­ly bind­ing between the par­ties, it can be relied upon as a record of agree­ment where spe­cif­ic terms have been agreed and a par­ty seeks to depart from them.

The leas­ing advice should deal with mat­ters includ­ing rent, incen­tives, the lease term and any option peri­ods, the amount and type of secu­ri­ty, the pro­por­tion of out­go­ings payable, if out­go­ings are payable, details of any licenced area and the licence fee payable, if any. The leas­ing advice should also include any unusu­al mat­ters or depar­tures from the terms of your stan­dard lease (see point 4).

Swaab Attor­neys has pre­pared a con­cise form of leas­ing advice that includes the above terms and more, which can be used for this pur­pose. Agree­ing to com­mer­cial terms in advance of draft­ing the lease can help pre­vent exces­sive costs from dis­putes and pro­tract­ed negotiations.

  1. Ade­quate security

A land­lord must ensure it has ade­quate secu­ri­ty in place to pro­vide a mon­e­tary buffer in the event the ten­ant breach­es the lease.This is most com­mon­ly a bank guar­an­tee or a secu­ri­ty deposit – the amount of which should be agreed in the leas­ing advice.

The amount of the secu­ri­ty dif­fers depend­ing on the type of lease, the pro­file of the ten­ant and the cred­it risk of the tenant.Security usu­al­ly ranges from 4 months’ – 12 months’ rent plus out­go­ings (if applic­a­ble) plus GST

Many pub­li­cal­ly list­ed com­pa­nies do not, as a mat­ter of com­pa­ny pol­i­cy, pro­vide bank guar­an­tees or secu­ri­ty deposits.Whilst pub­li­cal­ly list­ed com­pa­nies are often con­sid­ered a low cred­it risk, the recent admin­is­tra­tion and impend­ing clo­sure of Dick Smith Elec­tron­ics stores should serve as a warn­ing to land­lords who blind­ly agree not to accept a bank guar­an­tee from a pub­li­cal­ly list­ed ten­ant. Of course, this is a com­mer­cial deci­sion for a land­lord to make.

Swaab rec­om­mends request­ing an uncon­di­tion­al bank guar­an­tee over a cash secu­ri­ty deposit. A secu­ri­ty deposit must be lodged with the NSW Gov­ern­men­t’s Retail Bond Scheme (if the ten­an­cy is a retail ten­an­cy), is at risk in cer­tain insol­ven­cy cir­cum­stances and can be sub­ject to Per­son­al Prop­er­ties Secu­ri­ties legislation.

  1. Request a per­son­al guar­an­tee, if necessary

Who is the ten­ant? Is the ten­ant a $2 com­pa­ny with no assets? Is it a spe­cial pur­pose vehi­cle that was only incor­po­rat­ed to serve as a legal enti­ty for the lease deal? If this is the case, then a bank guar­an­tee or secu­ri­ty deposit can only pro­vide lim­it­ed recourse to recov­er any loss­es or make good any dam­age if the ten­ant breach­es the lease.

Request­ing a per­son­al guar­an­tee from the direc­tors of the ten­ant com­pa­ny will allow anoth­er avenue of recourse where a ten­ant breach­es the lease and the secu­ri­ty has been com­plete­ly utilised.

Don’t for­get to address this issue in the leas­ing advice. If you do not include the require­ment for a per­son­al or cor­po­rate guar­an­tee in the leas­ing advice, it is dif­fi­cult to nego­ti­ate into the trans­ac­tion at a lat­er stage. 

  1. Ensure you use an up-to-date lease that is tai­lored to your asset

Is your asset a com­mer­cial asset, retail or mixed-use?It is impor­tant that your lease is appro­pri­ate and tai­lored to the type of asset you are leasing.

Prop­er­ty laws change and the intro­duc­tion of or changes to oth­er laws (such as per­son­al prop­er­ties secu­ri­ties law, work­place health and safe­ty) can have an impact on your rela­tion­ship with the ten­ant and how you lease your asset.

You must ensure that the lease used for your asset is tai­lored to the type of asset you own and is up-to-date with all applic­a­ble laws.

Swaab Attor­neys ensures that our land­lord clients have a tai­lored lease for their assets, whether retail, indus­tri­al or commercial.Our clients enjoy peace of mind know­ing that their leas­es are cur­rent and con­sis­tent across their assets.

  1. Ensure you have the right doc­u­ments in place to prop­er­ly doc­u­ment the lease deal

Not all lease trans­ac­tions are as straight­for­ward as agree­ing terms, nego­ti­at­ing and com­menc­ing a lease.

Some lease deals will involve the land­lord giv­ing an incen­tive to the ten­ant. This could be in the form of a mon­e­tary incen­tive (ie a rent free peri­od or rent abate­ment) or the land­lord may con­tribute towards the cost of a fit-out or under­take works to the premises. 

In some cas­es, the com­menc­ing date of the lease might be con­tin­gent upon the hap­pen­ing of a future event, and there­fore uncer­tain. This future event might be upon obtain­ing devel­op­ment con­sent, or the com­ple­tion of land­lord or ten­ant works, or even upon final­i­sa­tion of con­struc­tion of the premis­es itself.

If a lease deal includes an incen­tive or is con­tin­gent upon an event, you may require an agree­ment for lease or a fit-out­/in­cen­tive deed.

Deeds and agree­ments ancil­lary to a lease can be com­plex doc­u­ments and sub­ject to heavy nego­ti­a­tion. Swaab Attor­neys’ prop­er­ty team has many years of expe­ri­ence in doc­u­ment­ing leas­es and ancil­lary documents

  1. Spe­cial­ist lawyer

It is impor­tant that your lawyer has the skills and expe­ri­ence (legal and com­mer­cial) not only to draft a lease, but to nego­ti­ate it with con­fi­dence and author­i­ty and recog­nise where your lease will be affect­ed by rel­e­vant leg­is­la­tion (for exam­ple, Retail Leas­es leg­is­la­tion).

Swaab Attor­neys’ prop­er­ty team con­sists of lawyers with many years of skill and expe­ri­ence across all facets of leas­ing (act­ing for major blue chip clients, inter­na­tion­al prop­er­ty funds, Gov­ern­ment, health care providers, retail­ers, high net worth land­lords of retail, indus­tri­al and com­mer­cial assets, Aus­tralia wide). We have the skills and expe­ri­ence to ensure a smooth trans­ac­tion from draft­ing to lease reg­is­tra­tion, which results in the best pos­si­ble out­come for our clients.

  1. Main­tain an easy-to-access cen­tral reg­istry of your cur­rent leases

It is impor­tant to have your cur­rent leas­es eas­i­ly acces­si­ble for quick ref­er­ence (for your­self and your leas­ing agents).In today’s con­nect­ed world, there is no excuse for not being able to quick­ly access a copy of a lease on-the-run, with min­i­mal fuss.

Swaab Attor­neys main­tains, as a free val­ue add for land­lord leas­ing clients, a data room of cur­rent leas­es (and oth­er rel­e­vant doc­u­ments, such as bank guar­an­tees) which enables land­lords and their agents to quick­ly and eas­i­ly access lease documents.

  1. Deal with problems/​issues quick­ly for a speedy resolution

Not every lease runs smooth­ly and is problem-free.

If an issue aris­es with a ten­ant, or you have a prob­lem ten­ant”, it is best dealt with quickly.You should always main­tain good com­mu­ni­ca­tion (either direct or via your agent) with ten­ants so that any prob­lems can be brought to your (or your agen­t’s) atten­tion and resolved in a time­ly man­ner. This can pre­vent cost­ly dis­putes and help to pre­vent the rela­tion­ship from souring.

A lease term can be for many years. A hap­py ten­ant is a good ten­ant, and a good ten­ant can sig­nif­i­cant­ly improve the val­ue of your asset.

Of course, if there has been a seri­ous breach of the lease (ie, non-pay­ment of mon­ey, etc) then rel­e­vant legal notices should be issued to the ten­ant and, in the appro­pri­ate cir­cum­stances the Land­lord should mit­i­gate its loss as soon as possible. 

  1. Plan­ning to redevelop?

If you are intend­ing to (or think­ing about) rede­vel­op­ing your asset in the not too dis­tant future you should include an appro­pri­ate relo­ca­tion, rede­vel­op­ment and/​or demo­li­tion clause in your lease.

These claus­es will allow you to either relo­cate a ten­ant if you intend to rede­vel­op your asset, or (depend­ing on the type of lease and the clause that is agreed) ter­mi­nate the lease before the ter­mi­nat­ing date so you can under­take the rede­vel­op­ment and/​or demolition.

The form of these claus­es will dif­fer, depend­ing on the type of asset (ie, retail or commercial/industrial).As not­ed above, the Retail Leas­es Act implies cer­tain terms into your lease which includes terms relat­ing to relo­ca­tion and rede­vel­op­ment. It is impor­tant that you are aware of your oblig­a­tions in this regard under the Act.

It is impor­tant that you achieve the out­come you are seek­ing if you are intend­ing to rede­vel­op your asset. Claus­es relat­ing to redevelopment/​early ter­mi­na­tion must be care­ful­ly drafted.

  1. End of lease obligations

Many issues can arise at the end of a lease where there is uncer­tain­ty sur­round­ing the ten­an­t’s end of lease obligations.

Is the ten­ant required to make-good the premis­es to base build­ing spec­i­fi­ca­tion? What is the lev­el of base build­ing spec­i­fi­ca­tion required? Is the ten­ant required to leave cer­tain fit-out­/­fit­tings in the premis­es, or remove cer­tain fit-out­/­fit­tings? Is the ten­ant required to redec­o­rate the premises?

Uncer­tain­ty in rela­tion to a ten­an­t’s end of lease oblig­a­tions can lead to cost­ly dis­putes, as mak­ing-good a premis­es can be a cost­ly endeav­our.

The ten­an­t’s oblig­a­tions at the end of the lease should be agreed, cer­tain and prop­er­ly draft­ed. Fail­ure to do so can lead to delay in rec­ti­fy­ing the premis­es and cost­ly dis­putes in deter­min­ing who bears what obligations.