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Commercial Leasing - the Legal Hurdles and Solutions

Paul McKenzie
Paul McKenzie

Prior to studying law and being a legal conveyancer, I've spent a number of years working in commercial/retail management and leasing. One thing I noticed, years later, is that nothing changed when it comes to negotiations and at times, hard ball tactics between commercial Landlords and tenants.

The commercial lease document remains the same - a reference page/reference schedule of the main terms and conditions such as the address/title of the premises/property, lease term, date of lease, expiry date, options, rent, outgoings, rent review details, permitted use, insurance, bank guarantee or bond, director guarantees if the tenant is a company, landlord details and tenant details. The document is required to be registered at the land Title Office/NSW Land Registry Services if the lease term is three years or more.

Some of the states have a landlord and tenant legislation - such laws are targeted towards landlord and tenant relationships that relate to commercial and industrial property. Some states like New South Wales do not have such legislation, but have case law/common law in their state that governs such relationships (excluding retail, which has its own Retail Leases act and mandatory requirement of disclosure statements).

When it comes to commercial/industrial landlord and tenant relationships, the case law in New South Wales and its government see such relationship as one where the parties are big enough to stand on their own two feet to look after themselves in disputes, and to mediate and use the courts as needed to resolve issues as needed. Some relationships are well managed with a good property manager acting for the landlord, assisting with rent reviews, options, repairs and maintenance, as well as other property matters.

Other cases involve relationships that are not well managed. Larger landlords and tenants may have their own in-house legal departments to battle out negotiations and hard ball tactics. Smaller landlords and tenants do not have the assistance of an in-house legal team, and the case may be such that the landlord has the advantage of a property manager that can play hard ball to the detriment of a tenant. For example, in a situation of a rent review dispute over a market review, the property manager has access to rental comparables and market information, as compared to the tenant, who does not have such benefit.

A solution for a smaller tenant is to consider to allocate funds and have provisions that enable the tenant to fork out money on legal advice, property valuers and rental market experts to assist them in their battle and have leverage over the landlord when it comes to a rent review dispute. The lease contract should always have a provision for an independent valuer to be appointed to assess the rent arbitration, final and binding. It is up to the tenant to appoint their own valuer/expert to act for in their interest to provide rental comparable details and market evidence, in order to help battle against the landlord and their property manager.

The tenant can always invest, engage and use other experts, such as legal assistance to help overcome other disputes with the lease, such as repairs and maintenance, on-site facilities, etc.

Should the tenancy get too hard for the tenant and be near the lease expiry, a termination by either party can be a blessing for that tenant. For example, a Chinese Restaurant in Castle Hill during the 1990s, when given notice to vacate, opted to move to a prime location in Blacktown with cheaper rent and better terms. The Chinese restaurant owner-manager said to me: "Mr XXX at Castle Hill did us a big favour, as the new location is much better, growing our income and profile much better".

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