Commercial Leases in NSW: Common Questions & Answers
1. What is a commercial lease?
A commercial lease refers to the lease of commercial property. This includes office space, industrial units, workshops and warehouses, retail shops (whether they are within a shopping centre or not), storage sheds, working yards and other non-residential property.
2. How long can a commercial lease term be?
Generally there is no restriction on the term of a Lease, but it must be fixed with certainty.
3. Is stamp duty payable on the creation or assignment of a lease?
Since 1 January 2008, stamp duty has not been payable on a Commercial Lease executed on or after that date. However, it is still payable on the transfer or assignment of a Lease.
4. Must the landlord allow a tenant to renew a lease?
If the Lease contains an option to Lease for a further term, the landlord will be bound by that option.
5. Is the landlord allowed to charge any amount for rent?
Essentially “yes”. No restrictions apply to the amount of rent that can be charged for commercial and industrial premises. However, during the term of the Lease, rent can only be increased in accordance with the rent review provisions in the Lease. Retail leases, which are a special type of commercial lease, do have statutory restrictions imposed on the timing and method of increasing rent during the term of the lease.
6. Can a tenant assign the Lease, or sublease, without landlord’s consent?
Generally, unless the Lease specifically prevents assignment or sub-leasing, the tenant has that right and doesn’t require the Landlord’s consent. However, most Commercial Leases will contain a term requiring the Landlord’s consent to be obtained before the Lease can be assigned or sub-let, or prohibiting it entirely.
7. What is a Security Deposit?
A security deposit is typically an amount equivalent to one or two month’s rent, which is deposited by the tenant to secure, as far as money can, the tenant’s performance of the tenant’s obligations under the Lease. Under the Retail Leases Act 1994 (NSW) a Landlord is required to lodge a security deposit with the Director-General of the Department of State and Regional Development. However, under your normal Commercial Lease, a Landlord generally is at liberty to deal with the Security Deposit as they see fit, so long as it is repaid, in part or in full, if required under the Lease.
8. Are there any formal requirements for the execution of a lease?
For land under the provisions of the Real Property Act 1900 (NSW) (which is most land in NSW) a Lease for a term in excess of three (3) years must be effected by executing a Lease in the approved form and the Lease must be registered, in order to pass to the Tenant an enforceable leasehold estate. If such a Lease is not registered, the Tenant would only have an equitable interest and it would be unenforceable against a competing registered interest.
9. If a commercial building gets a new owner, can the new owner renegotiate the existing lease?
No, unless the tenant is a willing negotiator.
If you purchase a commercial building with an existing lease, the term of which extends into your ownership, then you own the property subject to that lease.
As to whether the tenant will likely be a willing negotiator… this will depend on their circumstances. In short, if there is a benefit to the tenant then they will likely be a willing negotiator. For example, if there is one year left on the lease and the tenant would like to remain in the premises for a period longer than that, then there’s no reason why you can’t negotiate with the tenant to extend the term of the lease.
If you are a landlord in this situation you need to target those things that will result in the tenant achieving an improved position, as well as you, if you are going to achieve a favourable outcome
10. Who gets to keep the registered commercial lease?
In most situations, the registered commercial lease is duplicated and both parties receive a copy.
However, only one of these copies will have a ‘registration sticker’ from Land & Property Information (LPI) affixed to it. This copy is usually held by the landlord.