When starting a new business one of the most important steps is securing a commercial or retail space. In doing so, it is almost always necessary to secure a lease that will be long enough to allow the business owner to become established in the community and to allow for patrons to rely on the location for repeat services and/or purchases.
Initially, it is important to determine the type of lease you need to enter into. There are two specific types for businesses, commercial leases and within commercial leases, retail leases. If your business is predominantly for selling, hiring or providing good and services to the public, then you most likely need a retail lease.
Premises that do not fall within a retail lease include those that engage in wholesaling, manufacturing or storage. A commercial lease contract is one in which the focus of the business is more of a catch-all; meaning it is predominately a non-residential lease.
A commercial lease does not require disclosure of the following as does a retail lease;
- Rent review
- Any other costs associated with the lease
- Tenancy Mix
- Important key provisions such as those relating to the likelihood of relocation or demolition of the premises
In the event that your landlord sells the building in which you have a leased business, the transaction will be covered under the Landlord and Tenant Act 1954. The simplest answer is that nothing will happen to your lease.
The new owner will be required to honour your lease until the end of its term. Furthermore, if you entered into you lease subsequent to 1996, and the landlord sells the building the landlord with which you have your agreement will remain liable for your lease unless;
- they negotiate a release from liability with you;
- there is a provision in the lease which excludes liability following a sale of their interest; or
- you agree to a release under the statutory procedure for release set out in the Landlord and Tenant (Covenants) Act 1995.
However, there are some other factors that also must be considered. The Torrens title system can also have an impact on your lease upon the sale of the building in which your business is housed. If your lease is registered, you may have acquired an indefeasibility of title, meaning that you have protection if the building is sold because the new landlord will have notice of the existence of your lease. However, if your lease is not registered, the new landlord may not have to honour your lease unless you have a short term commercial or retail lease for 3 years or less. Leases of this duration are automatically protected. In New South Wales the requirements for a retail lease also include:
“If a retail lease is for a term of more than three years, or if the parties to the lease have agreed that the lease is to be registered, the landlord must lodge the lease for registration within three months after the lease is returned to the landlord following its execution by the tenant.”
In the event that your building is sold, the landlord is required to give you notice of the same. This is called a Notice of Attornment. The notice must contain the following;
- Name of the new owner
- The address for rent remittance
- Acknowledgement of any rent that has been paid in advance
- Outstanding or late rent fees will be paid to the new owner
- Possible need to provide a new bank guarantee to the new owner (if you provided a bank guarantee to the previous owner)
Because the sale of a building that houses business tenants is complicated, it is imperative that as a business owner, as soon as you have notice of the sale of the building where your business is housed, you seek, at the very least, a legal consultation. Upon doing so, bring a copy of your current lease agreement and any confirmation that your lease is registered. In addition, if possible, bring the name of the new buyer and a copy of the real estate sales contract entered into between the seller and the buyer.
If you find yourself in need of assistance with this or any other legal issue, or are wondering how to negotiate a commercial lease agreement, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.