Commercial Leases in Tasmania
Commercial leases are essentially contracts between the owner of premises and a tenant to lease the premises for the purpose of running a business. Commercial leases include retail leases and non-retail leases. This article deals with commercial leases in Tasmania.
What are commercial leases?
Commercial leases are contracts between two parties for the leasing of premises for a business purpose. They are governed by the common law and parties are free to reach any agreement they wish. There is also some important legislation that applies to commercial leases including Part III of the Conveyancing and Law of Property Act 1884 and the Australian Consumer Law (Tasmania) Act 2010.
General commercial (non-retail) leases include leases for warehouses, distributors and manufacturers which might be running a commercial enterprise. These are not retail leases as they are not used to deal directly with the end consumer.
Retail leases
Retail leases are leases that involve premises to be used for the sale of goods or services to an end user – for example a hairdresser or a grocery store. Leases for premises used for parking or storage and office blocks are not considered retail leases.
In some cases, a licence to use part of the common area of a shopping centre will also be considered a retail lease, if that licence is for a period of no less than six months. A lease will not be a retail lease if it is for premises of more than 1000 square metres.
Retail leases are governed by the Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (CPRT) and this Act should be read in conjunction with the terms of the lease.
Minimum term
The minimum term of a retail lease under the CPRT is five years. However, a landlord and tenant can agree on a lesser term. When this occurs, the tenant should seek legal advice and a certificate from their solicitor stating that the tenant has had the effect of a reduced lease period explained to them.
Money collected from the tenant
Key money is money (or other benefit) that a landlord asks for in return for the grant, assignment or renewal of a lease. A ratchet clause is a clause that states that the amount of rent payable under the lease may not be decreased. Key money and ratchet clauses are both prohibited under the CPRT.
However, in Tasmania property owners can ask for a payment in relation to an assignee of a retail lease. However, Tasmanian landlords cannot require a security deposit to be more than three months’ rent. Landlords can negotiate the payment of stamp duty and mortgagee’s consent with the tenant, if this is contained in the lease.
Under the CPRT, each party is generally required to pay their own costs in relation to the preparation of lease documentation. Tenants should note whether land tax is payable under the lease, as unlike a number of other states, there is no provision for this under the CPRT.
Disclosure statements and proposed leases
The landlord in a retail lease must provide the tenant with a disclosure statement outlining important matters like the estimate of outgoings (expenses). This disclosure statement must be provided to the tenant at least seven days before entering into the lease. Likewise, the landlord must give the tenant a copy of the proposed lease as soon as practicable after entering negotiations.
Options and renewals
In Tasmania, a tenant’s right to an option can be lost if they fail to notify the owner by the required time under the lease. If there is no option to renew under the lease, the landlord must notify the tenant within three months as to whether the landlord will offer a renewal of the lease, and if so, on what terms. The tenant has two weeks to notify the landlord that they will accept the terms of the renewal if one is given.
If this notice is not provided, the tenant can holdover (remain in the premises) for a further three months until the landlord provides this information.
Rent clauses and reviews
Tenants and landlords should also be aware of how the rent is to change during the term of the lease. The rent may go up by a fixed amount or may be adjusted according to the Consumer Price Index (CPI) but the lease must specify which method.
At the end of the lease term, the parties will usually have to try and agree on a new rent amount themselves. If the lease is a retail lease, a Specialist Retail Valuer (SRV) may need to determine the market rent of the premises. However, parties should be aware that valuers are not cheap and that a valuer’s rental figure is normally binding on the parties.
Repairs and maintenance
It is important to remember that the CPRT does not include provisions relating to repairs and maintenance. Tenants and landlords should check the lease for any provisions in relation to this. However, the CPRT does state that a tenant is not required to pay rent and outgoings if the property is unusable or inaccessible due to damage that is not the fault of the tenant.
Disputes
Parties should try to resolve disputes themselves wherever possible. If this fails, parties can refer the matter to the Office of Consumer Affairs. If this is unsuccessful, parties can apply to a court to decide the matter.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.
