A commercial lease is an agreement whereby a Lessor grants a Lessee the right to use a property for the purpose of operating a business which is not retail such as an office or warehouse. This agreement allows the Lessee to have an exclusive right to use the property for a fixed period of time for an agreed sum of money known as rent.

Entering into a commercial lease agreement is a significant business decision and therefore, you should do your due diligence, analyse the terms and conditions of the agreement and understand the rights and obligations contained in the agreement before signing it.

Legislation Regulating Commercial Leases

Legislation concerning commercial leases varies from State to State in Australia.

Following are the major pieces of legislation regulating commercial leases in New South Wales:

Conveyancing Act 1919 (NSW); and

Real Property Act 1900 (NSW)

Some commercial leases may also be classified as retail leases and thus will be governed under the Retail Leases Act 1994 (NSW).

Terms of the Lease

Before entering into a commercial lease, the Lessor and the Lessee both need to be certain of the meaning and operation of particular terms used in the process. These can be outlined as follows:

Tenure of a lease: The tenure of a commercial lease or the time period of a lease allowing occupancy of a commercial property is an important factor for both the Lessor and the Lessee. Typically the tenure of a commercial lease is for 3 years or more.

Rent: The most significant part of a commercial lease agreement is the amount of rent to be paid by the Lessee. The initial rent is basically decided after rounds of negotiation between the parties to the lease agreement. The amount of rent varies from property to property depending upon the location, size, term of the lease and type of the business to be carried out within the premises. The amount of rent, the mode of payment and the time or period when the rent will be reviewed, should all be specifically stated in the commercial lease agreement. The agreement shall also specify provisions of penalty for situations where the Lessee has failed to pay the lease amount within a stipulated time period. The outgoings payable by the Lessee should also be specified in the Lease.

Permitted use: The permitted use clause in a commercial lease agreement plays an important part. This clause determines the type of business which may be carried out in the leased premises as per the agreement. However, it is the Lessee’s responsibility to obtain Council approvals in order to use the property as required.

Trading hours: This clause in the commercial lease agreement specifies the core trading hours that the property may be open for business. Council approval may be required to operate outside the normal trading hours.

Common areas: A commercial lease agreement must specify the common areas available to a Lessee for usage on a shared basis. These common areas include:

Stairways, escalators, and elevators;

Malls and walkways;

Common parking areas;

Toilets and restrooms; and

Gardens and fountains.

Registering a lease: The commercial lease agreement needs to be registered if the term of the lease exceeds the specified time period as required by the relevant law of the State where the property to be leased is located. In NSW, the Lease should be registered if it exceeds a tem of three years.

Relocation: A Lessor can request the Lessee to relocate its business to different premises in the same building in certain circumstances. Under such situations, the Lessor should give a written notice to the Lessee before the actual relocation takes place. The relocation notice should disclose the alternative premises offered by the Lessor to the Lessee.

How Can We Help You?

Owen Hodge Lawyers are experienced in handling lease agreements and associated matters. If you are planning to enter into any such commercial lease agreement, feel free to contact us.

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