New Business? Sounds like you need a Lease!
You’ve got an idea for a new Business. That’s great! Whether you are opening a quirky cafe, planning to make your mark as a fine arts retailer, or bring joy to others with a fresh and vibrant flower store, you’re going to need a Lease. So let’s take a look at the process of getting you up and running in your new venture!
For the purposes of this article, let’s assume that you have agreed on your rental figure, area, term of lease, options, among other normal Leasing matters that arise early.
Let’s also assume the Lease is a Retail Shop Lease governed by the Retail Shop Leases Act 1994 (‘the Act’), and there are no fit-out periods required.
1. See your Lawyer (obviously)
Contact with your Lawyer as early as possible is key to a smooth transition into trade.
A Lawyer should help you negotiate the finer terms of the Lease, and will provide guidance on the Lease terms, and what they could mean in practice. While you think you may have it all covered because you’ve agreed on Rent, Reviews, Term and other matters, do you know whether the Outgoings being charged are permissible under the Act? Are you responsible for capital replacement of Air Conditioner parts? How many times do you have to paint the Premises during the Term? Is the Property suitable for the Permitted Use? Are you entering into the Lease in the most appropriate entity?
There are many terms that you need to be across before committing to a long term Lease.
2. Lets get Disclosing!
Pursuant to Section 21B(1) of the Act, the Lessor is to provide the Tenant with the following seven (7) days prior to the Tenant entering into the Lease;
(a) Draft of the Lease; and
(b) The Lessor Disclosure Statement.
The Lessee may waive the 7 days obligation of the Lessor pursuant to Section 21B(2).
If the Lessor gets this wrong? Look to section 21F which states that a failure to comply with the obligations set out in 21B means that a Tenant may be able to terminate the lease within 6 months of the Commencement Date!
The Lessee must give a Lessee Disclosure Statement to the Lessor at least 7 days prior to the Lessee entering into the Retail Shop Lease pursuant to Section 22A.
The Lessee must also provide the Lessor with a Financial Advice Report (signed by the Tenant and the Tenant’s Accountant) and a Legal Advice Report (signed by the Tenant and the Tenant’s Solicitor) pursuant to Section 22D.
Failure to provide the disclosures within the relevant period under Sections 22A – 22D means that a retail tenancy dispute exists between the persons, and the receiving person, within the relevant period, may apply, as provided under the QCAT Act, to QCAT for an order that the disclosing person give the document to the receiving person, pursuant to Section 22E.
The Disclosure Documents have a prescribed form, and the preparation of these forms and compliance with timing requirements can all be dealt with by your Lawyer, provided that you see them early enough!
3. Happy with the Lease? Lets proceed!
Okay, so the Lawyer has negotiated the terms of the Lease further, and Disclosures are all underway. You are now happy to proceed with the Lease. What’s next?
Well apart from signing the Lease and the relevant disclosures, there is a few administrative matters to attend to.
4. Insurances
You will need to provide proof of insurances before the Lease commences. These can vary depending on the Lease and the type of Business being undertaken, however the usual suspects include Insurances with a reputable insurance provider for;
(a) Public Liability Insurance ($10,000,000 – $20,000,000)
(b) Plate Glass Insurance for full insurable value
(c) Tenant’s Property Insurance
(d) Business Interruption
(e) Workers Compensation Insurance
The Certificate of Currency that is to be provided usually must note the Landlord (and sometimes the Landlord’s Mortgagee) as an interested party.
5. Security Deposit
The Lease will normally require that a Bond is paid up-front to cover the due and punctual performance of the Tenant’s obligations under the Lease. This will normally be something like ‘the sum of two (2) months rent plus GST’.
Normally, you can elect to pay this as either a cash bond, to be held by the Landlord or the Landlord’s Agent, or a Bank Guarantee to be provided by your Bank.
If you are obtaining a Bank Guarantee, you must look to the Lease for the terms of the Bank Guarantee, which will sometimes include specific wording, and terms such as ‘no expiry date’.
The Original Bank-issued Bank Guarantee will need to be provided to the Landlord prior to the Commencement Date of the Lease.
6. Costs and Consent
Rent is normally paid one month in advance, so it’s common practice for the first months rent to be paid at this point also.
If the Lease is to be registered with Land Titles (which we almost always suggest), the Lessee is liable for those registration costs.
If the Lease is for ‘part of the Lot’, the Lease requires a Plan in registrable form. If the Landlord does not have a plan meeting Land Titles requirements, the costs of surveying the Leased area is generally borne by the Tenant.. which could be expensive! This is often a commercial decision for the Tenant as to whether they wish to outlay the costs of a surveyor for the purposes of registration of the Lease.
If the Landlord has a Mortgagee on Title, it is imperative that Mortgagees Consent is obtained. The Landlord must obtain the consent of the Mortgagee, at the Landlords cost – see Section 48(1)(b).
Provided that the Lease is in registrable form, the costs are paid and the Mortgagees Consent obtained, the Lease and Consent can now be registered with Land Titles, with a Registration Confirmation Statement to issue in due course, showing the Title subject to the new Lease.
7. Now get Trading!
The Lawyers for the Landlord and Tenant will work together in finalising the matters associated with the Lease, but provided everything is good to go, it’s now time to get in start building your Empire! From the Commencement Date, you will need to commence trading, and be paying your Rent and Outgoings.
If you found this article helpful or interesting, and think someone else might find it useful, please like, share or comment!
Jacob Corbett | Director/Solicitor
Bradley & Bray Solicitors
Note: This brief summary is provided for general information only and should not be construed as Legal Advice. Should you require Legal Advice in respect of any of the matters raised above, we strongly recommend that you seek legal advice as soon as possible