A commercial lease is simply a contract between a landlord and a tenant that would like to use the commercial space specifically for running a business. This could be an office area, a warehouse or even an industrial site. In this articles we look at the different types of leases and how the laws for commercial leases are governed.
What is a lease?
A lease is a contract outlining the terms of occupying a business space for a specified time and at an agreed fee. A lease is legally binding. So, it is important for leaseholders to understand their rights and responsibilities under the lease before entering into an agreement or breaking an existing agreement.
A legal adviser is able to best assist you in understanding the specifics of a contract and won’t necessarily cost you or your business money.
You’ll find that very few commercial leases have the same contractual terms, even if they are in the same precinct as one another. The negotiable terms and conditions tend to vary from lease to lease, allowing businesses to remain occupying the space for a longer duration, if they require.
What legislation governs commercial leases?
In Queensland, commercial leases are generally governed by common law. However, the Australian Competition and Consumer Law Act 2012 and the Queensland Property Law Act 1974 do also play their part.
When it comes to leases for a retail shop, this is governed by the Retail Shop Leases Act 1994. The provision of this Act shall always prevail and it can’t be contracted out of.
Different types of commercial leases
There are a few different types of commercial lease in Queensland to cater to the different business needs and growth opportunities. When choosing a type of lease for a business, you should consider whether the business needs flexibility of a month-to-month lease or the stability of a long-term lease. Here are some of the main types of commercial leases:
- Short-term renting is a type of lease gives you flexibility. If you expect your business to grow significantly, you can rent small premises initially and move into a bigger location as you expand.
- Long-term leasing is ideal if you have found a location that captures your target market. A long-term lease gives you the stability to establish your business over time
- Leasing a space in a shopping centre (retail lease) will generally have issues arise from it. The rent is often higher in shopping centres and there are often more restrictions on leasing terms.
Minimum lease standards
Queensland’s laws require some minimum standards to be met. If these minimum standards aren’t met, the lease will be void to the extent of the inconsistencies. These standards include:
- Limits on payments under the lease. A lease must not contain a provision requiring the tenant to make payment other than rent, the tenants outgoings, damages for breach of the term of the lease, satisfaction of an indemnity under the lease or interest on arrears of rent or outgoings;
- Rent reviews. Rent can only be reviewed on a single basis except for the first year;
- Market rent . If rent is reviewed to market, this must be undertaken by a specialist retail valuer who has determined the rent in accordance with the standard set out in the Act. The cost of which will be borne 50/50 by the landlord and tenant;
- Outgoings. The lease must specify outgoings payable such as insurance, electricity, local authority rates and centre management rates., how they are determined and apportioned;
- Compensation. A tenant may be entitled to compensation against the landlord in limited circumstances;
- Option in lease. The landlord must give the tenant written notice reminding it of the latest date for exercise of the option at least two months before that date;
- No option in lease. Where a lease does not contain an option, the onus is on the landlord to tell the tenant whether it is prepared to offer an extension of the lease.
With these minimum requirements outlined clearly in all commercial leases, there is little room for misunderstanding between the tenant and landlord. However, with this being said, there are plenty of instances where a landlord would be at fault according to the lease agreement and is required to provide some reasonable compensation to the tenant. These examples include:
- When the landlord significantly restricts access to the tenant’s shop
- When the landlord significantly restricts or alters customer access or flow into the shop
- When the landlord causes a substantial disruption to the tenant’s business
- When the landlord is not quick to rectify or repair building defects or breakdowns in plants or equipment
- When a landlord neglects cleaning, maintenance or repainting of the building
- When a landlord causes the tenant to leave the shop before the end of the lease so the landlord can refurbish or extend the building
- When a landlord makes an untrue statement or misrepresentation which causes the tenant to enter into the lease
- When the landlord fails to make the shop available for trading on the date specified in the lease
These types of commercial disputes are resolved through mediation or through the Queensland Civil and Administrative Tribunal (QCAT).
If you are looking to enter into a commercial lease or break a commercial lease, be sure to get in touch with a qualified lawyer to understand your rights. Alternatively, if you believe you might be entitled to compensation because of a breach of a commercial lease by a landlord then you should get in touch with an experienced leasing lawyer from our team for support and advice.