When you manage or lease a commercial, industrial, or retail building you have to track the leasing issues, not only for the landlord, but also for the tenant. The performance of an investment property is impacted by rental and lease documentation in a variety of ways; you do not normally want a vacant property.
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The Property Manager or Leasing Manager for the property has to keep things under control and on track to the property strategy, business plan, and tenancy mix.
To solve the problem it is best to run a leasing activity reporting process and update it at least monthly. Within each month the report becomes a moving tool to support the property investment for the landlord. It is a document that tracks:
What you are normally looking to avoid here with the report is disruption to cash flow or something that disturbs the function of the property outside of any plans you may have. Accuracy in the report is paramount as it is likely to be the main document that keeps you abreast of critical lease issues. If there is an error in the report then you will likely miss a critical date on a lease, and that can be significant in the function of the property over the longer term for the landlord.
The leasing activity report is a forward looking report usually covering the next 12 months and everything that can happen to leases and licences therein. Special attention has to be given to anchor tenants, and tenancy mix strategies that are already in place; these strategies are already active and should be continued.
In a multi-tenant occupancy, the number of leases in the building can become daunting and diverse. When the landlord owns and operates a number of properties at the same time, the matter of lease stability is also complex. The leasing activity report keeps you on track.
A leasing activity report should include the following issues:
When you use these topics for your leasing report, it is clear for you to see that most things are covered and under control. In addition to the items above it is best to provide a time line graph of events both current and foreseen to help track events before they happen.
Under a lease, the landlord remains the legal owner of the leased land, but agrees to 'carve out' most of the rights that come with that ownership and give them to the tenant to use for a period of time. The lease sets out the terms upon which that is done. Leases often refer to the landlord as the "lessor" and the tenant as the "lessee".
As owner, the landlord still keeps significant rights and controls over the lease and the land. A good lease should properly protect the legitimate rights and interests of the landlord as owner and the tenant as the user of the land.
Basically, a lease gives a tenant a legal right to exclusive use and possession of all or part of an area of land, for an agreed rent and an agreed period or for a period implied by the law. The tenant can even generally exclude entry by the landlord, except in the case of emergencies or by prior agreement or if the landlord has a right to re-enter the land on termination of the lease.
By was of contrast, a licence to occupy premises does not confer a right to exclusive possession (or to exclude the landlord).
What should a lease cover?
A lease should at least deal with the following things:
- the proper description of the premises
- the duration of the lease should be specified (called the "term" of the lease)
- whether the lease can be renewed and for how long
- the amount of rent and any bond
- how rent is to be reviewed during the term of the lease or on its renewal
- contributions to payment of the landlord's outgoings (e.g. rates and taxes)
- how the premises may be used - Council or other permission may be required
- who owns and pays for any fit-out and its removal at the end of the lease
- alterations and building work
- access and trading hours
- repairs and insurance
- what security the landlord requires, e.g. personal guarantees if the tenant is a company, bank guarantees
- rights to assign or sublet
- essential terms of the lease
- breach of the lease
- rights to terminate
- what happens on termination
- Writing and registration
While the law recognizes some leases even if they are not in writing, writing is generally required and is certainly desirable to give certainty to the terms. If the leased land is sold before the end of the commercial lease, the tenant will want the new owner to honour the lease.
In NSW Australia, if the lease exceeds three years (including any options to renew the lease), this protection is obtained by registering the lease with Land and Property Information NSW. Leases for less than 3 years are often not registered, because there is some extra protection under the law for tenants of such leases, but it is still prudent to register them.
Implied terms
In the absence of express terms in the lease, the law implies certain rights into the lease e.g.:
- a tenant's right to quiet enjoyment of the premises (i.e. the landlord may not disrupt the tenant's use of the premises)
- a term that the landlord may not do anything inconsistent with the purposes for which the premises are leased
- the law also implies certain obligations on the tenant e.g. to use the premises in a "tenant-like manner" (e.g. not damage the premises), and deliver possession to the landlord at the end of the tenancy
- an obligation on tenants to pay rent (rent is to abate if the premises become unfit for occupation through damage by fire, flood, property lawyers near me lightening, storm or tempest; if part of the premises are damaged rent is to abate proportionately)
- an obligation to repair (the obligation depends on the condition of the premises at the start of the lease; in any case a tenant is not liable for fair wear and tear)
- rights of entry to view the state of repair and rights to re-enter and terminate the lease for failure to pay rent or for breach of some other covenant in the lease.
There is some argument as to whether these implied terms apply to all leases, but most commercial leases we have dealt with contain explicit clauses dealing with these topics.
Assignments and Sub-Leases
An assignment transfers the whole of the tenant's interest in the lease. A sub-lease transfers part of the tenant's interest in the lease, (e.g. part of the premises for part of the remaining term).
An assignment or sublease of the premises is only permitted in accordance with the terms of the lease. Most leases contain terms restricting the right to sub-lease or assign. The lease will usually provide that a landlord cannot refuse to consent unreasonably and sets out the things the landlord is entitled to consider in refusing that consent.
It is important from a tenant's perspective that the lease permits assignment to guard against downturns in business.