Looking ahead for landlords

When a landlord enters a lease, it is important to think ahead. Your lease needs to be flexible enough to properly protect your interests now, and potentially respond to changes in circumstances well into the future.

Are you likely to sell the premises during the term of the lease?

If there is a chance that you might sell the property while the lease is on foot, you should make sure that the leases are all registered. If the leases are not registered, then they might not be properly transferred when the title is transferred.

Most of the time, your tenant will ask you to register the lease at the start of the lease term. Even if the tenant doesn’t ask you to do so, you may want to do so anyway. Any potential buyer will then be able to see the leases on the title to the land and will be able to see that your property is a good investment.

Might you develop the land?

If there is a chance that you may develop the land, you will need to think carefully before entering into new leases for very long terms, or which have options in them.

You may also wish to include special clauses in your lease which allow for the lease to be terminated early, or for the tenant to be relocated to another part of the property, if there will be development work. If this is something you might wish to do, your lease needs to be carefully drafted, and you also need to consider whether state and territory law imposes additional obligations on you.

Rent Review

How will rent be reviewed under your Lease?

There are three common methods of rent review. These are:

Fixed Percentage, where the rent increases by a specific percentage each year.
CPI Increase, where the rent increases according to the consumer price index. The benefit here is that as inflation goes up, the lease keeps up with it.
Market Review, where the rent is reset to a market level.

Most of the time, either a CPI or Fixed Percentage reviews method is used, with an occasional market review every few years (often if a lease option is exercised).

Most market review clauses allow the landlord to nominate a new market rent, and then allow the tenant to either agree of refuse. If the tenant refuses, it is generally the case that an independent valuer is appointed to fix the new rent.

Additional Tenant Rights

If your lease is in the ACT, you also might need to consider whether your tenant will have extra rights at the end of your lease under the Leases (Commercial and Retail) Act 2001. If this Act applies to your lease, your tenant may have an automatic right to extend the term of your lease – even if there is no option. Your tenant might also have the right to be given preference over other tenants in lease negotiations at the end of the term. You should consider whether you need to get lawyers certificates from your tenants at the start of the lease.

If you are a landlord considering entering into a new lease with your tenants, send us your enquiry or call Elringtons’ Commercial Leasing team on 6206 1300 to discuss how we can help you plan your new lease.