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Tenant FAQs

Commercial Prop Mng Tenant FAQs









Tenant FAQ's

The landlord can only force a tenant to move premises if a there is a relocation clause in the lease.

If the lease does not contain a relocation clause, the landlord cannot move the tenant.

If the lease does contain a relocation clause, it should specify the conditions under which the landlord can relocate the tenant.

Under the Retail Leases Act 2003 certain conditions for relocation apply to the lease. For example:

  • the new premises must be ‘reasonably comparable’ to the existing premises;
  • the rent for the new premises is to be generally the same as for the existing premises;
  • the landlord must pay the tenant's reasonable costs of the relocation.

In addition to the lease, the Act also provides that the Disclosure Statement (provided by the landlord to the tenant) must specify whether the lease contains a relocation clause and if the landlord has any plans for the building in which the premises are located during the term of the lease which may invoke the relocation clause.

Section 55 of the Act covers the issue of relocation of the tenant's business.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

  • No, provided none of the limited grounds in section 60 of the Retail Leases Act 2003 exist on which a landlord may withhold consent to assignment.
  • Section 61 of the Act contains the procedure that a tenant must follow in order to obtain consent to assign the lease. The landlord has an obligation to act reasonably in consenting to a transfer of lease (section 144 of the Property Law Act).
  • See Assigning a retail premises lease for more information.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

 

No. This is based on the terms of the lease. A lease can be either 'Net Rental' (tenants pays rent and agreed outgoings) or 'Gross Rental' (landlord pays the outgoings).

Yes, if this is what the tenant has agreed to in the lease. It is very important that tenants check a lease’s ‘make good’ and maintenance requirements. Wherever possible, tenants and landlords should agree on a Condition Report at the start of a lease to avoid future disputes.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

 If a landlord is registered for GST then GST is payable on rent and outgoings. It is important that a lease specifies whether GST is inclusive or exclusive.

It should be noted that the landlord's disclosure statement for new leases (Schedules 1 and 2) makes provision for the landlord to outline whether GST is inclusive or exclusive, so it should be clear to the tenant what the situation is for the lease.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

The landlord must renew a lease if the lease contains an option to renew, and the tenant has validly exercised the option.

If there is no option to renew, the only circumstance where a landlord is required to renew the lease is:

  • where the tenant has been in continuous possession of the premises for less than five years;
  • the tenant has not obtained a certificate waiving the tenant’s right to a lease of five years (as per section 21 of the Act).

See Five-Year Waiver Certificates for more information.

If a lease contains no options the landlord is not obliged to renew the lease – even if the tenant has developed substantial goodwill in the premises.

This is made clear in section 79(b) of the Retail Leases Act 2003 (the Act), which specifies that failing to renew the lease does not amount to unconscionable conduct.

In this case, the landlord is required to provide the tenant with notice of the landlord’s intentions as to whether they wish to renew the lease or not.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

If a landlord deems that a tenant has breached the lease, the landlord may issue a notice of default to the tenant. Default notices are often given to tenants for non-payment of rent. The process for issuing a notice of default will usually be what is outlined in the lease, i.e. the lease may state that if a tenant is behind in rent, the landlord may issue a breach notice to the tenant giving the tenant 14 days (or another time period reflected in the lease) to remedy the breach, otherwise the landlord may re-enter the premises.

Relevant legislation is Section 146 of the Property Law Act 1958 which covers restrictions and relief against forfeiture of leases and under-leases.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

If no option exists, the landlord must notify the tenant in writing within 6-12 months of lease expiry whether the landlord will offer a lease renewal or not, and if so, the terms of any renewal.

  • If an option exists, the landlord must notify the tenant of the last date the tenant can exercise the option, 6-12 months prior to that date.
  • An option may not be exercisable by the tenant if the tenant has not remedied any notified lease default or has persistently defaulted throughout the lease term.
  • If an option is exercised or the lease is to be renewed, the landlord must provide a disclosure statement at least 21 days prior to the end of the lease.
  • The landlord must return the security deposit plus interest as soon as practicable after the lease ends provided the tenant has performed all of its obligations under the lease.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

During the term of a lease:

  • If the lease provides for a rent review, it must state when the review is to take place, and the basis on which the review will be made.
  • A lease cannot prevent the reduction of the rent when rent is reviewed or adjusted.
  • A tenant is only liable to pay outgoings specified in the estimate of outgoings and the lease.
  • The landlord must provide estimates of outgoings and statements of outgoings during the course of the lease.
  • Capital costs relating to the premises are not recoverable from the tenant.
  • Land tax is not recoverable from the tenant.
  • The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the lease was entered into the structure and fixtures, plant and equipment; and appliances, fittings and fixtures relating to specified services.
  • The tenant may arrange for urgent repairs, subject to complying with prescribed procedures.
  • The landlord must notify the tenant in writing at least 60 days prior to any proposed alterations or refurbishments that may affect the tenant’s business. The tenant may be entitled to compensation.
  • A landlord may be liable to pay a tenant compensation for loss or damage resulting from the landlord’s actions or in-actions affecting the tenant’s trading at the retail premises.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

The assignment (or transfer) of a retail premises lease is the transfer of lease from a current tenant to a new tenant.

The VSBC can help you understand your position regarding assigning (or transferring) a lease, and your rights and obligations during the process.

The procedure for assigning a lease is usually set out in the ‘assignment’ section of the lease.

However, all provisions in the lease are subject to Part 7 of the Retail Leases Act 2003 (the Act), which sets out the minimum standards for assigning a lease.

Current tenant obligations

Under Section 61 of the Act, before the current tenant seeks consent of the landlord, they must:

  • give the proposed tenant a copy of the Disclosure Statement that they received from the landlord when they first entered into the lease;
  • disclose any changes that they know of to the Disclosure Statement to the proposed tenants.

Requesting consent from the landlord

Section 61 of the Act specifies that the tenant’s request must be in writing. It must be accompanied by information about the financial resources and business experience of the proposed tenant.

The timings and process for a tenant to request consent from a landlord are:

  • The current tenant asks the landlord to give the new tenant a new Disclosure Statement that is no more than three months old from the date of the request.
  • If the landlord receives this request, the landlord must provide the new Disclosure Statement within 14 days.
  • If the landlord fails to do so within 14 days of the request, the tenant is not required to provide the proposed tenant with a Disclosure Statement, as specified in section 61(3).

Reasons a landlord can withhold consent

Section 60 sets out the reasons for a landlord to withhold consent when assigning a lease. This section overrides any other reasons specified in the lease. The reasons are:

  • The proposed tenant wants to use the premises in a way that is not permitted under the lease. For example, the proposed tenant wishes to use the premises as a restaurant when the permitted use under the lease is a sports store.
  • The landlord considers that the proposed tenant does not have the financial resources or business experience to meet the obligations under the lease. For example, the proposed tenant is a first time fashion retailer who would be replacing a fashion retailer that has more than 300 stores.
  • The tenant has not complied with the reasonable assignment provisions of the lease. For example, these may include any of the steps involved in the procedure for obtaining the landlord’s consent to assignment set out in section 61.
  • Where the assignment involves the sale of a business, the tenant has not provided the proposed tenant with business records for the past three years.

Continuation and sale of existing businesses

If the assignment involves the continuation of an existing business, there are different disclosure requirements. The release of liability applies only to tenants where the assignment involves the continuation of an existing business.

The requirements specified by section 61(5A) of the Act are:

  • The Disclosure Statement given to the proposed tenant is to be in the same form as prescribed by the Retail Leases Regulations 2003 (although the layout does not need to be the same as the prescribed Disclosure Statement).
  • A copy of the Disclosure Statement must also be given to the landlord.

The tenant (and any guarantors they may have) will be released from any obligations under the lease and will not be obliged to pay the landlord any money in respect to amounts payable by the proposed tenant (see section 62), if the:

  • tenant has given the landlord and the proposed tenant a new Disclosure Statement as set out in section 61(5A);
  • Disclosure Statement does not contain any information that is false, misleading or materially incomplete.

In addition, where the assignment involves the sale of a business the tenant must also provide the proposed tenant with business records of the last three years (or such shorter period as the tenant has carried on the business at the premises); see section 60(1)(d) of the Act.

Timings

Section 61(6) of the Act specifies that once the tenant’s request for consent to assignment has been received by the landlord, the landlord must provide the tenant with a response in an efficient manner.

In any event, consent will be deemed accepted by the landlord if:

  • The tenant has complied with their obligations under section 61 (i.e. to put the request in writing, provide the requested documents to prove the proposed financial stability, and provide the proposed tenant (and the landlord, if the assignment involves a sale of business) with the relevant Disclosure Statement); and
  • The landlord has not provided the tenant with a written notice that the landlord has consented or withheld its consent to the assignment within 28 days of the tenant’s request.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

Landlord’s responsibilities

In general, the landlord is responsible for maintaining the following (in the same condition as the premises were in when the lease was entered into), as outlined in Section 52 of the Act:

  • the structure of the premises (i.e. the walls and the roof);
  • the fixtures in the premises (i.e. items belonging to the landlord, such as built-in shelving);
  • the plant and equipment at the premises (i.e. the air conditioning system);
  • the appliances, fittings and fixtures that the landlord has provided under the lease relating to the services such as gas, electricity and water (i.e. powerboards, water pipes and the hot water system).

The landlord is not responsible for maintaining those items if:

  • the need for the repair arises out of the tenant’s misuse of that item (see section 52(3)(a));
  • the tenant is entitled or required by the lease to remove the item at the end of the lease (see section 52(3)(b)).

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

A retail lease is a legal document and is binding to all parties who sign it.

If a tenant must still fulfil obligations under the lease, but has left the premises without notifying the landlord and is no longer paying rent, then the landlord has:

  • a legal right to re-enter and terminate the lease on the grounds that the tenant has abandoned the premises;
  • the right to take action against the tenant to recover any money lost because of the tenant's departure.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

  • A retail lease is a legally binding document and therefore both parties must agree to end a lease.
  • If the landlord does not wish to end the lease, the tenant may be responsible for the landlord's reasonable out-of-pocket expenses in finding a new tenant.
  • The actual amount the tenant is responsible for is a matter of negotiation between the parties, but the costs may include rent until the premises are re-let and the agent's re-letting fees.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

This depends on the variation involved. In certain circumstances a variation can constitute a new lease, but it would depend on the variation in question.

A variation of lease occurs when a substantial change to the original lease is made.

Many variations will not necessarily cause a surrender and re-grant of a lease. If it is not the intention of the parties to create a new lease, legal advice should be obtained before a lease is varied, especially if such variations are to be extensive.

Note: If a new retail lease is created via a variation, the landlord must provide the tenant with a new Disclosure Statement.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

For new retail premises leases, the rent will be negotiated and decided upon by the landlord and prospective tenant.

For existing leases, the rent will be determined by the rent review provisions in the lease and specifications in the lease.

Rental increases may occur throughout the lease – if the lease provides for it – by a fixed percentage or amount, or by a certain figure determined by the consumer price index (CPI).

If renewing a lease, the lease usually provides for a market review of the rent to determine the value. In this case a range of factors are considered, for example, the location, size and condition of the premises. If the parties cannot agree on the rental for the new term, the parties may require a valuer to determine the rent. If the parties cannot agree on the valuer's appointment, the VSBC can assist parties in appointing a Specialist Retail Valuer.

(Question and Answer taken from 'FAQs' on the Victorian Small Business Commissioner website)

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  Klemms Commercial Industrial

551 Glenferrie Rd
Hawthorn VIC 3122

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