Negotiating a commercial lease involves more than reaching an agreement on the rent. A Lease is a long term commitment between the Landlord and the Tenant. A well-negotiated and well-drawn Lease helps to build a good relationship between the parties from the beginning, reduces the likelihood of disputes down the track, and can add value to a business.

Commercial Lease Key Terms

The following key terms are commonly the subject of negotiation:

1. Rent and rent review Methods of rent review include:

a. Fixed annual percentage increase

b. CPI review (rental review according to the consumer price index), or

c. Market review (rental review according to the current market, usually by comparing with rent of similar market).

2. Outgoings

The lease should specify which outgoings are payable by the Tenant and in what proportion (if the Tenant is only leasing part of the property). The premises being leased should also be described accurately to avoid confusion.

3. Lease terms and options

A commercial lease will have a fixed lease term and may provide options for further terms. If further terms are provided, the Tenant will be able to exercise an option before the end of the current term for a further term (if the Tenant decides to continue with the Lease).

4. Fitout contribution

The parties need to agree on whether the Tenant is required to fitout the premises (pursuant to Landlord's requirements). The Landlord may be required to make contributions to the fitout.

5. Security deposit

Usually by way of a bank guarantee taken out by the Tenant in favour of the Landlord for a sum specified.

6. Permitted use

By enquiry of the local council, the tenant should ensure that the permitted use under the Lease is sufficient for its intended activities on the premises. The Landlord should ensure that the Tenant obtains the required permits and licence for the permitted use. The permitted use will also affect whether it is a retail lease.

7. Special Conditions

Other special conditions may be required depending on the parties' individual circumstances, such as specific renovation/refurbishment obligations, rent free period, due diligence period and legal costs.

Is it a Retail Lease?

The Retail Leases Act 2003 ("the Act") prescribes certain rights and obligations on parties to a retail lease. This act, if applicable, usually offers more protection for the Tenant and imposes additional obligations on the Landlord.

While negotiating the terms of the Lease, it is therefore important to find out whether the Lease is in respect to retail premises. In short, retail premises are premises which are leased for use, wholly or predominantly, for the sale or hire of goods by retail or for the retail provision of services. The parties should specifically state in the Lease whether the Act applies and ensure this is consistent with the description in the "permitted use" section of the Lease. If there is any ambiguity as to whether it is a retail lease, it is important to obtain legal advice.

If the Act applies, the Tenant must receive a Disclosure Statement from the Landlord at the outset of negotiations. The Act also has a wide impact on rent, outgoings, term, rent review and other terms of the Lease. The parties (especially the Tenant) should ensure that the Lease is prepared and executed in accordance with the requirements under the Act.

Process for Negotiating and Preparing the Lease Document

Commonly, the parties will start their first round of negotiation by way of a Heads of Agreement ("HOA"). The Landlord (or its Managing Agent) will set out the key terms in a HOA document and propose it to the prospective Tenant. The Tenant will often seek legal advice on the HOA and request amendments if necessary.

The HOA itself is not the lease document (and is usually not binding), but it is a helpful tool to record the parties' preliminary consensus. Upon signing the HOA, the Landlord's lawyers will draft the lease agreement on the basis of the HOA.

The second round of negotiation starts when the Landlord's lawyers send the draft Lease to the Tenant's lawyers for review. Although the key terms are agreed in the HOA, parties may disagree on the way they are written in the Lease and may discover further issues in respect to other terms. Accordingly, it is most likely that the Tenant will request amendments of certain clauses (through its lawyers) after obtaining legal advice on the draft Lease. The Landlord, with their lawyers' advice, may agree or object to the Tenant's requests. This is a more complicated negotiation process and it involves both parties and each of their lawyers.

Once the parties reached an agreement on the final draft, the document will then be executed and the Lease can formally commence.

Lease Variation, Renewal and Transfer

After the Lease commences, parties may require further negotiation in the following circumstances:

1. Deed of Variation of Lease the parties may wish to vary certain terms of the Lease by executing a separate Deed.

2. Deed of Renewal of Lease when the Tenant exercises an option for a further period of tenure. This Deed will also record any variation of existing terms and the parties' agreement on a market review of the rent (if applicable), which will be used as the starting rent for any further period of tenure.

3. Transfer of Lease when the Tenant wishes to transfer the lease to a new Tenant (commonly when the existing Tenant carrying a business on the premises has sold the business to the new Tenant), and is seeking the Landlord's consent.

For assistance on negotiating a Lease, or if you have any queries regarding Commercial Leases generally, please contact us and it would be our pleasure to assist. Call Sharrock Pitman Legal today on 1300 205 506.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

Written by a member of our Legal Team

Andre Ong

For further information contact

Andre Ong

Andre is a Principal of Sharrock Pitman Legal.

He heads our Property Law Group and is an Accredited Specialist in Property Law (accredited by the Law Institute of Victoria). He also deals with Commercial Law. For further information, contact Andre Ong on his direct line (03) 8561 3317.

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Negotiating a commercial lease involves more than reaching an agreement on the rent. A Lease is a long term commitment between the Landlord and the Tenant. A well-negotiated and well-drawn Lease helps to build a good relationship between the parties from the beginning, reduces the likelihood of disputes down the track, and can add value to a business.

However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Supreme Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be published on the Supreme Court website for at least 14 days prior to any application being lodged.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself usually does not take long to process the application (maybe another 1 to 2 weeks) and this is completed using the electronic Supreme Court filing system. This means you do not have to go to a Court hearing. The timeframe for processing applications for Letters of Administration is even less, given that there is no Will document for the Court to consider. There is also a general discretion for the Court to raise a 'Requisition' asking for more information before they review the application - this can sometimes delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate or Letters of Administration. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.

You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE:

(03) 8561 3318

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