If you’re party to a commercial lease that is coming to an end, whether you’re a landlord or tenant, it’s important that you be aware of any ‘make good’ obligations that are part of the lease.

If your lease has a make good clause, it’s important that you understand your obligations, whether it is limited to leaving the premises in good repair, or reinstating to a specific condition, and whether you can avoid the obligation by paying a sum of money, which can provide both landlord and tenant with flexibility. If a lease specifies that the condition of the premises in question ought to be reinstated, or made good, it is probably the case that you will need to comply.

Even in these circumstances, you may not be liable for the total cost if there isn’t a reduction in value of the premises. This is because pursuant to common law, the landlord is only entitled to recover any consequential reduction in value from failing to undertake the reinstatement.

Additionally, in Queensland, section 112 (1) of the Property Law Act 1974 provides that, where a lease requires a premises to be left in good repair at the end of a lease, any recovery is limited to the reduction in value of the premises.

It is especially important to make note and take photos of the condition of the premises at the start of the lease in these circumstances so that all parties can be satisfied of the initial condition, whether a tenant is or isn’t required to make good, it remains important.

The number one tip and consideration is to carefully negotiate the relevant make good requirements at the time of negotiating the lease. Parties are often so excited and focussed on the commencement of the lease, that they omit to take into consideration what the ‘end’ will look like, or they categorise it as a future concern. But when the time comes, if you are required to make good pursuant to the lease, it could impose a number of unintentional onerous conditions on you.

If you’re unsure whether you need to comply with any ‘make good’ conditions that may be in your lease, or want assistance to negotiate reasonably terms at the time of construction of the lease, the team at Enterprise Legal can help you determine the best course of action for you. For the best outcome, call us early in the process:

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At Enterprise Legal, we always say that ‘prevention is better than cure’. So when it comes to commercial, industrial or retail lease disputes, the best way to prevent them is to ensure you understand what you are signing up for in the first place and to negotiate some protections at the time of entering into your lease. After all, a lease is typically one of the biggest financial obligations that your business may need to commit to, keeping in mind that you are usually committed to your obligations for a minimum of three or five years!

Whether you’re a Landlord or Tenant, here are our top five tips to keep in mind when entering into your next lease:

1. Heads of Agreement/Letter of Offer Terms

Quite often, before a lease is prepared, the parties will sign a short document or letter outlining the key terms of the deal. This document is usually referred to as a ‘Heads of Agreement’ or ‘Offer to Lease’ and is often prepared by the real estate agent managing the deal.

Although usually an Offer to Lease is not binding on the parties, it forms the basis of the formal lease terms. This stage of lease negotiations is the best time to negotiate key terms, before either party incurs the expense of preparing and negotiating formal lease documents. If either party seeks to amend terms that are agreed in a Letter of Offer after formal lease documents have been prepared, it can create friction between the Landlord and Tenant at a very early stage in their association.

We recommended that you seek legal advice on the terms of an Offer to Lease, to ensure a smoother lease negotiation process and to avoid the potential for a dispute.

2. Permitted Use 

A frequent issue in lease negotiations is whether a Tenant will have the exclusive right to operate their business type (specified as the ‘permitted use’) in the centre/complex. This means that it’s very important for a Landlord to consider whether any Tenant’s proposed use conflicts with any rights the Landlord has already given to existing Tenants in the centre/complex.

A more commonly overlooked issue around permitted use is which party is responsible for ensuring that the intended use can lawfully be conducted from the premises. The widely accepted position in leasing matters is that the Tenant is responsible for all aspects of ensuring their intended use can be carried out from the relevant premises. A Landlord will typically include protections in the Lease under which the Landlord expressly states they do not warrant or guarantee that the premises will be fit for the Tenant’s intended use, and further that the Tenant is obliged to obtain all necessary consents/approvals (i.e. liquor licences, council approval etc) to run their business from the premises.

Landlords should always ensure this protection is included in their Lease and Tenants should understand that it is a matter for them to ensure that the premises will be fit for their specific purpose. To avoid disputes, a Tenant should make enquiries early (prior to signing a lease!) to ensure they can lawfully conduct their business from the premises. Failure to do this can result in having to comply with notices from applicable authorities (eg. Council), which can be extremely expensive!

3. Repairs to Equipment 

Another common area of dispute relates to responsibility for fixing certain equipment (such as air-conditioning equipment) in the premises if they need repairing.  

A lease should cover off on the responsibility of the parties to maintain equipment, and to repair/replace it when it breaks. Typically, a Tenant is responsible for ‘wear and tear’-related repairs, whereas a Landlord will be required to attend to all repairs or replacement that are of a ‘capital nature’ provided that the Tenant has regularly serviced or maintained that equipment during the Term and has not deliberately or wilfully contributed to the damage. However, that will not always be the case and it is important that both parties check the relevant clauses in their Lease to understand their obligations. It is also beneficial (especially for the Tenant) to take steps to understand the condition of any relevant equipment (such as air conditioning) at the time of entry into the Lease.

4. Insurance 

Tenants in particular should always consider the specific wording of any clause in their Lease that deals with insurance obligations, to ensure the Landlord’s requirements will be commercially acceptable to the Tenant, especially in light of their intended business use.

Some practical examples are:

• Where the Lease requires insurance to be taken jointly in the names of the Landlord and Tenant.This seems innocent enough, but the practical reality is that this type of insurance cover can be onerous and expensive for a Tenant to obtain. Realistically, a Landlord generally requires this so that they can receive notice if a Tenant makes a claim on their insurance policy in relation to the Premises. The practical compromise is that the insurance clause should only require the Tenant to note the Landlord as an ‘interested party’, which does not cause extra cost and which requires the insurer to provide notice to the Landlord if any claim is made.

• Where the Lease requires business interruption insurance. This is a ‘big hitter’ as far as the cost of insurance is concerned. A Tenant should consider whether they really require and whether they can afford this type of insurance, before they agree to be bound by a lease to obtain it.

5. Landlord’s Right to Redevelop/Relocate

Landlords of multi-tenant centres or complexes (eg. shopping centres or strip-malls) typically include clauses which give them the right to relocate Tenants to comparable locations within the centre/complex, or to redevelop or demolish part of all of the centre/complex.

Tenants should always carefully consider the specific wording of these clauses and the practical implications. At a minimum, the clause should stipulate that any relocation must be to a comparable location and it should deal with how the rent will be treated in those circumstances, but as a further step, the Tenant should consider whether they want to (where practical) have the right to return to the original location. It is also important to contemplate who will be responsible for the costs of the Tenant’s fit-out in the new location in these circumstances.

A well drafted and well-understood lease will go a long way to avoiding a dispute arising between the Landlord and the Tenant. To avoid a costly dispute, engage the expert Enterprise Legal Business Law team to help you with your next lease negotiation:

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So you have followed our top tips for entering into a commercial or retail lease, but things haven’t exactly gone to plan. How do you know what the next step is?
And how do you know when it is time to get expert lawyers involved?

At Enterprise Legal, it is our view that most disputes are best handled early on before little problems become big problems. Whether you are a landlord or tenant, the best way to resolve a lease dispute is to ensure that it is handled properly from the start.

The following are ‘red flags’ that indicate that it’s likely time to chat with the Enterprise Legal team:

1. A Notice to Remedy Breach Has Been Issued

If you are a tenant and have been issued with a Notice to Remedy Breach, stop what you’re doing and come chat to a lawyer! Breach notices need to be issued in a particular way to be valid under law, and the reality is that most landlords (and even some lawyers) don’t get this right. If a Notice is incorrect, it will likely be invalid. If you engage a lawyer at this point not only can you ensure that any issues with a Notice can be resolved, but you may also find that your lawyer can help you negotiate an outcome with your landlord.

If you are a landlord and need to issue a Notice, don’t go at it alone! It is so easy to make a mistake when preparing and issuing a Notice to Remedy Breach so it is worth engaging a lawyer so that you can ensure that everything is correct. If a Notice is not valid you will ultimately end up spending more time and money than you would have if you had a chat to a lawyer to begin with.

2. You Are Not Getting Along With Your Landlord/Tenant

While disagreements between parties may just seem like straightforward interpersonal concerns at first, we all know that these things can escalate quickly! By chatting to a lawyer early on, you may be able to resolve your concerns, put your mind at ease, and ultimately avoid a prolonged dispute. Sometimes a simple letter from a law firm can make a real difference. If it doesn’t, you will have a record of your concerns and can point to your attempts to resolve issues later on down the track, which will assist your prospects significantly!

3. You Have Been Locked Out (Or You Want to Lock Out Your Tenant)

Landlords - hold your horses! Locking out a tenant is pretty serious, and you need to make sure that you have followed the appropriate steps before you escalate matters. If you don’t, you are at a real risk of ‘repudiating’ the lease (which is bad!) and being liable for the tenant’s damages.

Tenants, if you are locked out, it is time to chat to a lawyer pronto! You do have options here, including obtaining an injunction to regain access to the premises. If you are unlawfully locked out, you may be entitled to claim damages from your landlord or claim that they have repudiated the lease. Either way it is imperative to make sure that you act quickly!

4. You Just Want to End Your Lease

If you want to terminate your lease early, there may be options available to you. If you want to terminate and minimise your risk, you’re going to want to speak with a lawyer first to work out how to properly terminate your lease, minimise your risk, and perhaps even resolve the concerns leading to termination of the lease.

5. Something Just Doesn’t Feel Right But You’re Not Sure What

Maybe something relating to your lease just doesn’t feel right and you want to get a sense as to whether it’s okay or not. The law is a confusing beast, and without the experience and expertise of a lawyer, it might not always be clear if something is okay and if you can proceed. If you are ever unsure, it may be a sign that it is time to chat to the Enterprise Legal team. If something is amiss, we will be able to quickly identify any issues and whether something can be done, or alternatively be able to set your mind at ease.

While you can’t always avoid a dispute, the best way to avoid significant costs and a lengthy legal battle is to act quickly. To resolve your concerns swiftly, engage the expert Enterprise Legal Disputes team to help you with your lease dispute.

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In a cautionary tale for all employers and occupiers (especially those with stairs!), the recent case of Julie Walker v Top Hut Banoon Pastoral Co Pty Ltd sets a stern reminder that steps need to be taken (pun intended!) to ensure that the workplace is safe and adequately maintained so as to avoid causing injury to others.

What Happened?

The plaintiff was employed by Shear Away Pty Limited, however, Top Hut Banoon Pastoral Co Pty Ltd was the occupier of Banoon station where she was attending as a shearers’ cook.

On 28 July 2015, whilst at Banoon station, the plaintiff put her foot on a step, and as she was bringing her other foot down, she felt it tilt and she was suddenly on the ground screaming out for help. She said that she noticed that the step had broken and one side had come “loose of the wood” and had torn completely off, the other side was “hardly attached but there”.

She sustained injuries to her lower back, right wrist, left ankle and right knee. She also suffered a psychiatric injury and an exacerbation of her type 1 diabetes mellitus. Her injuries were assessed to be a 15% whole person impairment.

The Law Generally

At law, it is well established that an employer has a non-delegable duty to take reasonable care. The duty is, of course, not absolute; it is the duty of a reasonably prudent employer and it is a duty to take reasonable care to avoid exposing the employee to unnecessary risks of injury.

The employer’s duty to adopt safe systems of work and to provide proper plant and equipment, will operate differently on its own premises and in circumstances over which it has full control, as compared with premises under the control of others and circumstances over which it does not have control.

The distinction in this case fell to fact that the employer did not have full control over the premises and therefore, in the opinion of District Court Judge Weinstein SC, there was no breach of duty on the part of the employer and the employer’s duty where there was a defect in the occupier’s equipment or plant was to do no more than cast an eye over the premises to ensure they appeared safe. The occupier alone was liable in negligence for not taking precautions against the risk of harm from the defect that caused the injuries to the plaintiff.

The Damages

Whilst the final orders on damages are still to be made, the plaintiff will be awarded approximately $1 million dollars for her injuries and Weinstein SC’s decision included a non-economic component of around $240,000, given the significant effect on the employee’s lifestyle and health following the fall.

It was held that she was no longer able to perform her role after the fall, and had to quit her job, which she had intended to keep till her late 60s.

Lessons Learnt

Whilst the employer in this case was held to not be liable for the injuries sustained by the plaintiff, this does not automatically mean that this will be the case for other employers in the future – no one case is the same! Employers still need to ensure they take reasonable care to avoid exposing employees to unnecessary risks of injury, so far as is reasonably practicable.

For occupiers, it is a stern warning that liability for injuries sustained will not automatically rest with the employer and there is the real risk that liability may fall on the occupier alone if the premises is not safe and not safely maintained.

For advice regarding your premises or for advice regarding your Workplace Health and Safety obligations, contact either the Enterprise Legal Workplace team or the Business and Property team today:

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On 21 July 2022, the Real Estate Institute of Queensland (REIQ) released new versions of the Contract for Commercial Land and Buildings (9th edition) and the Contract for Commercial Lots in a Community Titles Scheme (8th edition).

The latest editions contain many amendments that have been made to align with the recently-amended REIQ Residential contracts that came into effect earlier this year, as well as some further changes made specifically to these commercial contracts:

New Termination Rights

Buyers now have a termination right if there is:

1. an error in the boundaries or area of the property;
2. an encroachment by structures onto or from the property;
3. there are services that pass through the property which do not service the land and are not protected by an encumbrance disclosed to the Buyer in the contract; or
4. a mistake or omission in describing the property of the Seller’s title to it.

Equally, should there be any services to the property that pass through other land (e.g. a neighbouring property) that are not protected by a registered easement, building management statement or statutory authority and it has not been disclosed to by the Seller to the Buyer in writing before the Buyer has signed the contract, the Buyer may terminate the contract.

So what does this technical jargon actually mean? It means that it is vital that sellers complete searches such as a ‘Dial Before You Dig’ or similar prior to entering into the Contract, so that they are aware of the location of all services and any potential encroachments or errors in boundaries which may need to be disclosed to the Buyer. Failure to do this could give the buyer a convenient excuse to terminate the Contract later down the track.  

Warranty of Present Use

The standard REIQ Contracts now stipulate that the seller does not warrant that the Present Use that is noted in the Contract is lawful. For example, this means that even though the present use of the property might be a ‘gym’ or ‘fitness centre’, that does not mean that a gym of fitness centre is lawfully allowed to be carried on from the property. . Further, in clause 7.7(1), if the present use is not lawful under the relevant town planning scheme, and the Seller has not disclosed that to the Buyer, the Buyer may terminate the contract. 

Consequently, it is very important for buyers to consider whether the use of the property is lawful for a particular use and to ensure they undertake appropriate due diligence to verify this, instead of simply ‘taking the Seller’s word’ for it. Equally, as a Seller, it is important to disclose if you are unsure whether the current use of the property is lawful. We highly recommend disclosure to the Buyer even if you are unsure to avoid the buyer relying on potential termination rights in this regard. 

Lease Warranties

Clause 10.3 now provides a large list of matters the Seller warrants that are correct as at the contract date in relation to current leases over the property. If there is a change in any way to these warranties during the Contract period (eg. between when the Contract is signed and settlement), the Seller must notify the Buyer of the change. 

Settlement Extensions

This new concept allows either party to unilaterally extend Settlement by up to 5 Business Days after the Scheduled Settlement Date specified in the Contract. This mechanism only applies to Settlement and does not apply to other conditions like the Finance or Building and Pest Condition. 

Default Place for Settlement

The standard condition has been amended so that if a Seller does not advise the specific location for Settlement (e.g. the specific law firm) at least 2 Business Days before the Settlement Date, Settlement will be required to take place at the Titles Office closest to where the land is located. Given the erroneous results this condition could result in, we recommend including a Special Condition to amend it.

Summary

There have been some significant changes made in the latest REIQ Contract updates for commercial buildings and units and it is important that parties understand what these mean and include appropriate Special Conditions to amend the Standard Condition if required. 

If you are purchasing or selling a commercial building or unit and would like guidance from Toowoomba's finest, you can get the ball rolling by contacting EL's conveyancing team:

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