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Commercial Lease Agreement Tenant Checklist - 13 things to find out before entering into a commercial lease

Monday October 24, 2016

Tenant Checklist - 13 things to find out before entering into a commercial lease

A lease is a contract which will bind the landlord and tenant and any guarantor.  The association may be a long one, and it is fundamental that certain enquiries are made by the parties at the outset to avoid future problems.

 

At a minimum the following enquiries should be made by the prospective tenant:

  1. Title Search

    A title search should be conducted to check that the proposed landlord is the registered proprietor, to see if there are any encumbrances which may restrict the tenant’s use (such as a restrictive covenant) and to check if there are any mortgages registered, in which case the mortgagee’s consent must be obtained. There may also be caveats which either should be withdrawn or the consent of the caveator obtained.  A title search will also reveal if there are any leases registered which need to be removed.

  2. Building Orders

    The tenant should obtain confirmation that any building orders have been complied with.

  3. Essential Safety Measures

    The Essential Safety Measures register should be inspected to ensure that inspections are up to date and that there are no outstanding issues.

  4. Property Report

    A property report should be obtained to ascertain the zoning of the property and to determine whether a permit is required in order to carry out the intended use at the premises.

  5. Survey Plan

    A copy of a survey plan should be checked to make sure it accords with the premises being leased.

  6. Condition Report

    A condition report should be obtained and photographs and videos taken so that evidence of the condition of the premises at the start of the lease can be established. This will be extremely useful at the end of the lease when determining the tenant’s make-good obligations.  The condition report should be signed off by both parties.

  7. Rent and Outgoings

    Information regarding rent and outgoings should be sought, especially where the Retail Leases Act 2003 does not apply and the landlord is not required to provide written estimates. Is there agreement on rent reviews?

  8. Required Consents

    Any required consents should be obtained (mortgagee, head landlord, Ministerial if applicable).

  9. Form of the Proposed Lease (including term of years and options)

    The form of the proposed lease should be ascertained. Some bank lenders will want to see a term plus options of at least ten years.

  10. ASIC Search

    If the landlord and/or tenant is a company, an ASIC search should be obtained to check who the directors/shareholders are. It will also reveal who has capacity to contract on behalf of the company.

  11. PPSR Search

    The Personal Property Securities Register should be searched to check whether any security interests exist.

  12. Conveyancing Certificates

    Depending upon the length of the lease and the rental being paid, it may be prudent for the tenant to undertake the usual conveyancing certificates and even consider registering the lease on title.

  13. Preliminary Agreements

    Is there any preliminary document such as Heads of Agreement which should be considered?  Has the landlord appointed a managing agent?

A strong and fair lease is an extremely important asset of any business and will be especially important if you decide to sell the business or transfer the lease to another tenant.  We highly recommend that you obtain legal advice as early as possible in the negotiations to ensure that you understand your rights and obligations before entering into the relationship.


Author:
Dianne Hodge