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Surrender of Retail and Commercial Leases

Posted by on May 31, 2017 in Articles, Business Sale & Purchase Articles, Commercial Agreement & Dispute Articles, Conveyancing Articles, Lease Articles |

When a landlord and a tenant both agree to terminate a lease before its expiry date this is called a surrender of Lease. A lease creates an interest in land in favour of the tenant and constitutes a contract between the landlord and the tenant. A surrender terminates both the tenant’s interest in the land and the contract. The process of the surrender should be regulated by a Deed of Surrender so that the rights and obligations of both the landlord and the tenant are clearly set out to ensure no disputes can arise at a later time. Also, if the Lease is registered, section 54 of the Real Property Act requires a Surrender of Lease form to be executed by the parties and upon registration the land will revest in the landlord. As a preliminary point, the parties should determine who will meet the legal costs relating to and arising out the surrender of the lease. The process for a typical surrender of lease will be as follows: 1. A Deed of Surrender of Lease has to be prepared covering numerous issues including: (a) The date of surrender i.e. the date the tenant will vacate the premises; (b) Payment of rent and outgoings up to the date of surrender; (c) Making good the premises by the surrender date .i.e. the tenant having to return the premises to the same condition they were in at the start of the lease; (d) Release of the landlord, tenant and any guarantors from liability from the date of surrender; (e) The return of any bank guarantee or security deposit to the tenant; (f) The liability of either the landlord or tenant or both for the legal costs and stamp duty relating to or arising out of the surrender of lease; (g) The preparation of the Surrender of Lease form to be registered at Land & Property Information (“LPI”); and (h) Any payment by one party to the other in return for the surrender. 2. The solicitor for the tenant will have to review the Deed and may wish to make amendments to which will have to be negotiated; 3. Once the Deed is finalised, the parties will have to sign it and exchange it so it can come into effect; 4. The tenant will have to make good the premises before the surrender date to the satisfaction of the landlord; 5. The parties will have to execute the Surrender of Lease form; 6. A letter will need to be sent to any mortgagee requesting it to produce the Certificate of Title at the LPI; 7. Once the Certificate of Title has been produced at the LPI, the Surrender form can be lodged...

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Bank Guarantees for Retail and Commercial Leases

Posted by on May 16, 2017 in Articles, Commercial Agreement & Dispute Articles, Lease Articles, Litigation Articles |

A landlord of a retail or commercial property often requires a tenant to provide a bank guarantee as security in case the tenant defaults under the Lease. Many bank guarantees that are offered to landlords are inadequately prepared by the bank and do not offer effective protection. To avoid a bank guarantee being rejected by a landlord or to ensure that it is one capable of being called on by a landlord the following should be considered: 1. Australian Bank The bank guarantee should be issued by an Australian bank with an Australian trading licence. This aids in the landlord’s ability to quickly and efficiently make a claim and to receive funds. 2. Unconditional It should provide and unconditional undertaking by the bank to pay a certain amount if a demand is made by the landlord. 3. Favouree It should correctly describe the landlord as “the favouree” i.e. the one to receive the benefit of the bank’s undertaking. 4. Customer It should state precisely the party for whom it is being issued (“the customer”) as the tenant. If the bank guarantee is sought by a third party connected to the tenant then it should mention the customer’s name followed by “at the request of [name of the tenant]”. 5. Description of Leased Premises The leased premises should be correctly described in full. 6. Purpose It must set out that the purpose of the bank guarantee is to secure the tenant’s obligations under the Lease with descriptions of the address of the leased premises and the parties including their names. 7. Amount It should correctly state the amount of the bank guarantee as required by the Lease which would normally comprise a certain number of months’ rent and proportionate share of any outgoings plus GST. 8. Expiry Date The expiry date of the bank guarantee should be at least 3 months after the expiry date of the Lease to give the landlord enough time to determine, upon the tenant vacating the premises, whether there have been any breaches of the Lease such as failure to make good the premises, to obtain any quotes for repairs, for the work to be carried out, for final invoices to be received and for a written claim to be made on the bank. May...

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Things To Know Before Leasing Business Premises

Posted by on Oct 6, 2015 in Articles, Business Sale & Purchase Articles, Commercial Agreement & Dispute Articles, Lease Articles |

A lease is an agreement between the owner of business premises (the landlord or lessor) and the operator of a business on the premises (the tenant or lessee). When you enter into a lease you are agreeing to pay monthly rent for the term of the lease, usually a number of years. If the rent is paid late the landlord can take possession of the premises without written notice and can lock you out. You will be liable for the rent until another tenant is found. A lease therefore involves a serious commitment on your part and you should get legal advice about all of its terms before signing it. Other things to be aware of are as follows: 1. You should check with the landlord or the local Council to see if there is development approval for the kind of business you wish to conduct on the premises. If not, you will need to apply for development approval from the Council; 2. Also, if you need to do a fit-out or building work check with the council if you need to lodge a development application; 3. You can negotiate a rent-free period with the landlord if it will take some time to set up your business. Also, you can make the lease subject to the local council granting development approval or simply wait for the approval before entering into the lease; 4. If the landlord is to provide fixtures and fittings with the premises you should check there is an inventory attached to the lease and that it is correct; 5. When negotiating the term of the lease you should always ask for an option for a new lease so that you get say a three year lease with an option for another three years. Without the option you may not be able to sell the business as the original term nears the expiry date or the landlord may grant you a new lease at a much higher rent; 6. You should agree on not only the rent but on how the rent will increase after each anniversary. Normal methods of increasing the rent are by way of a CPI adjustment, a fixed percentage or by agreeing on the market rent; 7. Normally, the landlord will ask you for security to ensure payment of the rent and outgoings. You should agree on this either being a cash bond (security deposit) for an amount equal to one to three months’ rent and outgoings or a bank guarantee for the same amount; and 8. Additional rules apply to retail shop leases which are leases of premises used wholly or predominantly for those retail purposes referred to in the Retail Leases...

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Business Legal Checklist

Posted by on Sep 8, 2015 in Articles, Business Sale & Purchase Articles, Commercial Agreement & Dispute Articles, Debt Recovery Articles, Lease Articles |

1. Does your Lease expire soon? Do you need to request a new Lease? A Lease over your business premises is an important part of your business. You should check when the Lease expires and, if soon, you must negotiate a new one with your landlord immediately. Otherwise, it will be highly disruptive to have to find and move to new premises. 2. If you are entitled to renew the Lease, when does the option period expire? Normally, you will have a three month window to exercise the option for a further term of years. You should check when this option period ends because if you miss out then it will be too late and you may be forced to vacate your business premises at the end of the Lease. 3. If you operate the business in partnership with others, do you have a written partnership agreement? If there are two or more owners of the business it is highly advisable to set out the rights and obligations between them in a written partnership agreement rather than just leaving it to chance. The agreement will cover many aspects including division of profits, salaries, roles of each partner, how disagreements will be handled and the rights of partners if one wants to leave or the business is sold. 4. If you operate the business through a company, do you have a written shareholders agreement? Where the business trades by way of a company it is highly advisable to have a shareholders agreement which will regulate the management of the company and will include clauses about various matters such as decision making, the rights of shareholders to appoint and remove directors, contributions by shareholders and resolution of disputes. 5. Do you know your obligations as a business to consumers under the Australian Consumer Law? The Australian Consumer Law imposes many obligations on retailers when selling their products or services to consumers who have corresponding rights and remedies available to them. For instance, retailers should be aware of the obligation not to engage in misleading or deceptive conduct, not to have unfair contractual terms and to comply with various consumer guarantees. 6. Do you know your rights under the Australian Consumer Law as a business consumer with respect to business suppliers? The Australian Consumer Law also offers businesses consumer rights against suppliers of goods and services if the upfront price payable under the contract is no more than $300,000.00 or $1 million if the contract is for more than 12 months. It is worthwhile to ascertain what those rights are if you have a dispute with a supplier. 7. Does your business need standard Terms and Conditions to give to consumers? Having...

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Transferring a Lease to a New Business Owner

Posted by on Aug 30, 2015 in Articles, Business Sale & Purchase Articles, Lease Articles |

As part of the sale of a business the vendor and the purchaser have to decide if the purchaser wishes to have a transfer over the existing lease of the business premises or wishes to apply to the lessor for a new lease. If it is to be the transfer of an existing Lease then for commercial premises the lease itself will set out the requirements to be satisfied but in the case of retail shop premises it is the Retail Leases Act 1994 NSW which regulates the arrangements betweens the parties. Normally, for both types of leases, an application will have to be made to the lessor to approve the transfer of Lease and the lessor will have to be provided with satisfactory evidence as to the purchaser’s financial standing and business experience. Provided the lessor does give its consent in principle to the transfer then the lessor’s solicitors will prepare a Deed of Assignment of Lease between the lessor, the outgoing lessee and the incoming lessee formally consenting and assigning the rights and obligations under the lease to the incoming lessee. The Deed will also deal with other matters including payment of any moneys owing under the lease and whether or not the outgoing lessee is to be released from future liability under the lease. The Deed of Assignment of Lease normally becomes effective on the date of settlement of the sale of the business. In the case of retail premises the Retail Leases Act sets out a number of additional steps or matters including: 1. The lessee must request the lessor’s consent to the transfer in writing. However, before making such request the lessee must furnish the proposed lessee with a copy of any Lessor’s Disclosure   Statement in respect of the lease given to the lessee together with details of any changes that occurred since; 2. The lessor is then entitled to request information it may reasonably require concerning the financial standing and business experience of the proposed incoming lessee. According to the recent NSW Court of Appeal decision of Lockrey v Historical Houses Trust of NSW the lessor can only request specific documents such as financial statements and tax returns for a specific period; 3. If the outgoing lessee (or any guarantor) wishes to be protected from ongoing liability under the lease it must give a copy of a Assignor’s Disclosure Statement to the incoming lessee and the lessor at least 7 clear days before the assignment becomes effective i.e. usually from the date of settlement of the sale of the business; 4. If the lessor does not deal with the request for consent to the transfer expeditiously there will be deemed consent if the...

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Buying a Franchise

Posted by on Jul 14, 2015 in Articles, Business Sale & Purchase Articles, Commercial Agreement & Dispute Articles, Lease Articles |

A franchise involves a business owner (the franchisor) giving you (the franchisee) the right, upon payment of a fee, to market and sell the franchisor’s products or services in accordance with the franchisor’s system of management and operational procedures. Franchising is regulated by the mandatory Franchising Code Of Conduct which requires franchisors to give prospective franchisees certain information to allow them to asses whether or not to enter into the arrangement. The Code also deals with dispute resolution processes and the termination of franchise agreements. Most franchises will also involve the franchisee having to enter into a Lease over commercial or retail premises. It is therefore important for a prospective franchisee to carefully consider the franchisee’s disclosure document, the franchise agreement, the Franchising Code of Conduct and any associated Lease before entering into the transaction....

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