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Arm yourself with sound advice before you sign a commercial lease
Table of Contents
If you’re a prospective tenant or landlord entering into a commercial leasing transaction, it’s likely that you will be asked to sign a number of different documents.
It’s important to understand the differences between each document and how they interact with each other. This knowledge will help you make an informed decision before you sign a commercial lease.
Let's look at each document to see what they mean.
The first document you're likely to sign is an Offer to Lease.
Offer to Lease is normally prepared by a property agent and sets out key terms that will form the foundation of the Lease Agreement.
These terms usually include the property address and size, current rent and annual increases, proportion of outgoings, security bond, whether there will be personal guarantees and any sort of incentive or special conditions.
Once the parties sign the Offer to Lease, the tenant will usually pay a deposit and the landlord will instruct its solicitors to proceed with preparing the formal Lease Agreement.
Whether the Offer to Lease is binding will depend on its terms. The document may expressly say that it is not binding in which case either party can pull out of the negotiations and the deposit will be refunded.
In some cases the Lease Agreement may be binding and give the landlord the right to keep the deposit if the tenant has a change of mind and perhaps further recourse against the tenant.
The NSW Parliament recently passed the Retail Leases Amendment (Review) Bill 2016 (“the Bill”) which has achieved royal assent and is expected to commence shortly. The Bill introduces reforms to the Retail Leases Act 1994 (“the Act”) that governs NSW retail shop leases.
Some of the ways which landlords and tenants will be impacted include:
- Minimum term: The requirement for a minimum lease term of 5 years will be removed.
- Registration: Leases with a term of more than 3 years will need to be registered. The lease will need to be lodged within 3 months after it is signed.
- Disclosure of outgoings: Landlords will have stricter disclosure obligations for outgoings contributions. A tenant will not have to pay an outgoing if it is not disclosed in the landlord’s disclosure statement.
- Non-retail premises: If a premises is used wholly for non-retail purposes then it will be excluded from the Act. This includes ATMs, vending machines, public telephones, children’s rides, internet booths, private post boxes and certain storage uses.
- Compensation: If a tenant exercises its right to terminate the lease during the first 6 months due to the landlord’s failure to give a disclosure statement or due to a defective disclosure statement, the tenant can recover compensation from the landlord. This includes the reasonable costs of entering into the lease and fitout costs.
- Mortgagee consent fees: Tenants will not be liable to pay the costs of the landlord obtaining mortgagee consent to the lease.
- Return of bank guarantees: Landlords will be required to return a tenant’s bank guarantee within 2 months after the tenant completes the performance of its obligations under the lease.
- Jurisdiction of tribunal: The monetary ...
What You Need To Know About Signing A Lease
A lease is a legally binding agreement to pay specific fees for a set term. Just like franchise agreements, are governed by the Franchising Code of Conduct (Code), leases have their own guidelines.
In Queensland, businesses that are retail in nature and/or situated in a retail shopping centre are subject to the Retail Shop Leases Act 1994 (RSLA). There is similar legislation in other states and territories.
Before signing a lease, there are some important considerations.
1. Offer to lease
The time to negotiate the key terms of the lease, such as rent, reviews and costs, will be in the offer or agreement to lease (OTL). When you sign an OTL you’ll commonly pay a deposit of one month’s rent. Whether the OTL is binding on you will depend on how the document is drafted. If you have a change of mind, you may be able to pull out of the OTL and only forgo your deposit.
2. Legal and accounting advice
If the RSLA applies, you must obtain advice from both a lawyer and an accountant and provide the landlord with certificates from your advisors. Even if the RSLA does not apply, it is prudent to still obtain legal advice because every lease is different and will usually be drafted heavily in favour of the landlord. Remember, there is always room for negotiation of troublesome clauses.
3. Due diligence and disclosure statements
Just like a franchise agreement, carrying out due diligence before signing a lease is vital. The landlord will not warrant that the premises are suitable for your business, therefore you need to determine the suitability of the location and whether the rent is reasonable.
If the RSLA applies, the landlord must provide you a Disclosure Statement which outlines various details about the premises and its location.
For retail leases, ...
How Will Pending Changes To The Retail Shop Leases Act Affect Your Business?
In November 2016 some important changes to the Retail Shop Leases Act 1994 (Qld) (the Act) will take effect, impacting on both tenants and landlords.
When is a retail lease legally entered into?
According to commercial law in Australia, a retail lease is legally considered ‘entered into’ on the earlier of two important dates: the date the lease becomes binding on the parties, or when the tenant takes possession of the premises.
The changes to the Act now provide that a lease is entered into the earlier of:
1. when the lease is signed by all parties
2. when the tenant takes possession of the premises or
3. when the tenant first pays rent (other than a deposit to secure the premises).
Leases covered by the Act
In order to be covered by the Act, a lease must be for a retail shop situated in a retail shopping centre or used predominantly for carrying on a retail business. There are further detailed conditions which apply to meeting these criteria.
The changes to the Act now exclude the following from the definition of a retail shop lease:
1. premises with an area over 1,000 square meters
2. premises used for a non-retail business, which are located within:
a. a multilevel retail shopping centre where the proportion of retail businesses on that level is less than 25%
b. a single level building and the retail area of the building is less than 25% of the total lettable area of the building
3. ATMs and
4. vending machines.
Other key changes to note in the revised Retail Shop Leases Act
At the end of each period for which a tenant pays outgoings, a landlord must provide an audited statement that details the outgoings. These statements must now provide a breakdown of centre management costs. Outgoings will also now exclude excess paid by landlords on insurance claims.
If a tenant is required to contribute towards a promotion fund, then the ...
There may be no other legal phrase that is more misunderstood and abused, by bush and city lawyers alike, than the phrase “without prejudice”.
Even where no dispute being resolved, it is not unusual to see emails or letters garnished with the words “without prejudice”, sometimes in all-caps or even underlined and in bold for good measure.
Without Prejudice: 5 Common Misconceptions
- The phrase must be written in capitals and marked to stand-out (e.g. WITHOUT PREJUDICE), otherwise it won’t apply.
- If writing a letter of demand, you should mark the letter Without Prejudice even though you’re not making any concessions or reducing the debt.
- If sending a letter to try and finalise a contract (e.g. sale of a business) through genuine negotiation or compromise, you should mark the letter Without Prejudice even though the contract is not a settlement of a dispute.
- Once your email or letter is marked Without Prejudice, then that correspondence is protected and cannot be used against you in the court of law.
- Even if you mark a letter Without Prejudice, you can choose whether to refer to that letter in subsequent court proceedings as it is your letter.
Without Prejudice Letter: What is It?
The “without prejudice” privilege applies to letters (paper or electronic) and verbal communications made in the course of genuine attempts to negotiate a settlement in a civil dispute.
The without prejudice letter or verbal communication must be a valid and genuine negotiation between parties with an intention to settle a dispute.
If negotiations fail, the without prejudice letter cannot be used in any subsequent court proceedings without the consent of both parties.
Without prejudice is a joint privilege that protects equally the maker and the recipient of the letter and cannot be waived unilaterally.
What is ...
1. Put it in Writing.
We can’t say this enough. Put every deal in writing.
Why is this ‘effortless’? Think of the alternative. If everyone made sure their agreements (and any variations) were clear and in writing, our litigation team would be out of business.
Call us cynical, but handshake deals are a thing of the past. With constant access to technology like smart phones, there’s no reason not to make sure there’s a record of the deal that has been struck.
2. Know Your Vulnerabilities
Rouse Lawyers offers a no-obligation 360o Legal Review. You’ll sit down with a senior member of our team over coffee, and they’ll take you and your business through our exposure detection process to make sure you are on top of everything (or at least aware of where you need to tighten things up!).
Our 360o Legal Review is designed to give you at least one ‘aha moment.’
What we know from experience is that you’ll walk away with added peace of mind.
3. Source Free Resources Online
There are a number of fantastic online resources that often go untapped.
Here are just a few...
For employment: https://www.fairwork.gov.au/ and https://www.fwc.gov.au/
For intellectual property: http://www.ipaustralia.gov.au/
For cases, legislation and articles: www.austlii.edu.au
And of course, our web site: www.rouselawyers.com.au
If you’re interested in our 360o Legal Review, get in touch with us to arrange a date on 07 3648 9900 or via email email@example.com. ...