4. Check that the landlord is only passing on the permitted outgoings and be aware of how and when the outgoings are to be paid.
The retail legislation in most states and territories sets out the types of outgoings that a landlord can recover from a tenant. If a tenant is uncertain about whether the outgoings the landlord intends to charge are permitted under the relevant retail legislation, the tenant should seek legal advice.
The tenant should check the provisions in the lease about how the outgoings are to be paid. For example, does the landlord give the tenant an estimate of the yearly outgoings and require the tenant to pay the estimated outgoings by 12 equal monthly instalments? If so, a tenant needs to be aware that at the end of the outgoings year, the tenant may have to pay a further lump sum to the landlord if the actual outgoings are higher than the estimated outgoings. This is a cash flow issue for the tenant.
5. If finance is being obtained for the business, determine if the financier requires security over any of the assets of the business to be located in the premises.
Many tenants require finance to be able to start a business and fit out the premises. It is common for leases to contain a clause providing that a tenant cannot allow anyone to take security over the lease or the tenant’s property within the premises, without the landlord’s prior consent.
If a tenant is obtaining finance, the tenant should find out what security the financier wishes to take. If the financier requires a mortgage over the lease or wants to take a security interest over any property to be located in the premises, the tenant should advise the landlord of the financier’s requirements and request any required amendments to the lease in order to satisfy the financier’s security requirements. Alternatively, the landlord and the financier may need to enter into a separate agreement about their respective rights. This agreement may need to be entered into at the same time the lease is entered into.
[breakoutbox][breakoutbox_title]Legislation of retail leases[/breakoutbox_title][breakoutbox_excerpt]What to look at to determine if a proposed lease is covered by the retail legislation.[/breakoutbox_excerpt][breakoutbox_content]To determine if a proposed lease is covered by the retail legislation look at the provisions of:
– for Queensland – Retail Shop Leases Act 1994 (Qld)
– for New South Wales – Retail Leases Act 1994 (NSW)
– for Victoria – Retail Leases Act 2003 (VIC) as amended by the Retail Leases (Amendment) Act 2005 (Vic)
– for the Australian Capital Territory – Leases (Commercial and Retail) Act 2001 (ACT)
– for the Northern Territory – Business Tenancies (Fair Dealings) Act 2003 (NT)
– for South Australia – Retail and Commercial Leases Act 1995 (SA)
– for Tasmania – Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas)
– for Western Australia – Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA).
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6. What security does the landlord require for the tenant’s performance under the lease?
Consider what security the landlord requires under the lease. Does the lease require personal guarantees? If so, the proposed guarantors should seek independent legal and accounting advice before signing any guarantee. It is important to check the applicable retail legislation to determine if there are provisions applying to personal guarantees. For example, the Queensland Act requires tenants to be released from their obligations under the lease when assigning the lease to a third party (provided the tenant has complied with certain disclosure obligations under the Queensland Act). However, the Queensland Act does not necessarily require a landlord to release guarantors when a lease is assigned.
The guarantors should obtain legal advice about whether the guarantee will or will not end if the tenant assigns the lease to a third party.
