There are a number of ways that you can protect yourself and your business when entering in to a retail lease. Read our four simple tips:
1. Ensure you have the correct type of lease
What kinds of businesses can hold a retail lease?
The Retail Shop Leases Act (1994) Qld places strict requirements on lessors and lessees before they enter in to a lease and during the term of the lease. A retail business falls under the scope of the Retail Shop Leases Act if the business supplies, sells or hires goods or services as its whole or predominate activity and the type of business is listed in the schedule of the Retail Shop Leases Regulation (2006) Qld. More than a handful of different businesses fall under this definition, from large supermarkets and department stores, to car dealerships, to antiques stores, and contemporary art galleries.
Obligations between landlord and tenant
If your lease does fall under the jurisdiction of the Act then you must ensure that the proper Disclosure Notices are exchanged between the landlord (lessor) and the tenant (lessee). Failure by your lessor to provide you with a disclosure statement before entering in to the lease can entitle you to terminate the contract within the first six months of the lease commencing (you may also be able to claim compensation). A contract may also be terminated within this time frame if the Notice is shown to be defective. A defective notice can arise from misleading, false, or inaccurate information being included or omitted.
It is important to find out what rights and obligations you hold before you think about leasing, as this can have a drastic impact on your business. Having the correct type of lease is what ensures that both parties are protected. Contacting your solicitor is the best way to obtain this information, or reviewing the Retail Shop Leasing Guidelines provided by the Queensland Government.
2. Know who you are getting in bed with
Making sure you know who you are leasing with is an important part of the process. Having a search conducted by the Australian Securities and Investment Commission (ASIC) is the business world’s equivalent of ‘Facebook-ing’ someone before your first date, and is an essential first step. Aside from an ASIC search, you should always perform the following enquires prior to entering into a lease, regardless of your role:
• conduct a Personal Property and Securities Register search,
• conduct a Land Title search, and
• check the classification of the property allows the type of use of the premises being lease.
These searches should reveal:
• any encumbrances that are registered over the property being leased,
• whether the current use of the property is lawful, and
• any liabilities that the person/company may have pending.
Additional searches may be required depending on the complexity of the lease you are entering in to, in which case you should contact a solicitor for further advice.
3. Obtain a personal guarantee
When entering into a lease, ensuring payment from your lessee is one of the most important factors. If you are leasing to a company, you should gain personal guarantees (usually given by directors) to ensure that there is a second recourse for payment should the company cease to exist. Personal guarantees essentially act as a safety net, as they allow the lessor to pursue any money owed them under the lease should the company fail to pay.
4. Protect yourself if the lease is assigned to another party
Lease assignments often occur for longer term leases, or a short term leases where the lessee intends to build up their business quickly and move on.
The lessor does not typically require the consent of the lessee to assign their lease to another party if they are selling the land on which the lease exists or for any other reason. A Notice of Attornment will simply be given to the lessee advising them of the change in the owner of the land.
If a lessee wishes to assign the lease to another party, they usually do require the consent of the lessor. While consent cannot be unreasonably withheld, there may be strict requirements added in the lease before the assignment can be effective.
Registering a lease
Where the lease is for a term of greater than three years, it is prudent that the lessee register the lease so that their rights are protected if the lease is assigned. It is important to note that if the lease is not registered, and is for a period of greater than three years (including additional option periods), the new lessor is not required to be bound under the terms of the existing lease.
Releasing personal guarantees
There is a ‘grey area’ in current legislation pertaining to the release of a guarantors under a lease upon the lease being assigned. This occurs in situations where:
• the lessee is a company, and
• personal guarantees have been given (usually by company directors), and
• the lease being assigned is a retail shop lease.
Under the legislation, if the release of any personal guarantees has not been explicitly addressed by all parties prior to entering in to the original lease, the corporate lessee may be the only party released from liability, with the guarantors remaining liable.
How we can help
If you require legal advice in any area of commercial or contract law, Streten Masons Lawyers are here for you. Contact Us today to find out more.