Why have a lease?
Essentially a lease imposes obligations on the tenant and is primarily for the benefit of the landlord. The main benefits for the tenant are the certainty of the term (otherwise occupancy can be terminated by a months notice) and the certainty of rent until the next rent review. As well as being a benefit this can also be a problem in that the tenant can be locked into a lease that no longer suits the tenant's requirements and is difficult to dispose of.
Term
The tenant is still liable for the rent for the full term of the lease. Even after selling the business and transferring the lease if the new tenant defaults.
Rent Review Clauses:
There are many variations. Some common provisions include:
- the new rental as assessed by the landlord is payable unless and until agreement is reached or the rent is settled by arbitration with this under or over adjustments taking place at that time;
- the costs of the rent arbitration are not always shared equally between the parties; and
- the valuer for the landlord and the valuer for the tenant meet to try and reach agreement and failing that an umpire decides.
Costs
The lease provides each party pay for their own legal costs in preparation of the lease and any renewals of rent and/or rent review.
Outgoings
Many leases provide for the tenant to pay (or reimburse the landlord) for all of the landlord's buildings outgoings including rates, insurance premiums, body corporate management fees, maintenance of grounds/garden.
Reinstatement
At the end of the lease the landlord is usually entitled to require the tenant to reinstate the premises to its original condition at the beginning of the lease.
Reinstatement could involve significant expense.
Rights of renewal
This is a tenant's right to extend the lease for a further term. There is usually a rent review to coincide with the beginning of the renewed term. The tenant needs to give notice to the landlord usually three months prior to the end of the current term.
Staying on after the lease expires
If the tenant remains in possession after the expiry of the term of the lease without exercising any rights of renewal, then the occupancy continues as a monthly tenancy on the same conditions as the lease.
Agreement to lease
These provide for a standard deed of lease to be entered into. Once you have signed the agreement you have agreed the terms of the lease and can no longer negotiate (unless conditions in the agreement provide otherwise).