A commercial lease is a legally binding contract that gives a tenant certain rights over a property for a set period of time subject to the terms and conditions set out in the lease. A commercial lease is used when leasing property used primarily for a business.
You should never sign a lease without understanding all of its terms and conditions. If you don’t understand what you are agreeing to you could experience serious financial and legal problems.
It is rare to find a commercial lease that is prepared by the tenant. It is almost always the landlord that prepares the lease when commercial premises are rented and the terms of the lease will generally strongly favour the landlord. Once the lease is signed the tenant is required to comply with the terms and conditions of the lease during their occupation of the landlord’s premises.
The lease sets out the obligations of the landlord and the tenant and the rights of each during the term of the lease and any options for lease that are exercised after the initial term of the lease has expired.
Commercial leases usually have longer terms than residential leases. This gives the tenant, usually a business, a longer security of tenure and allows them to transfer the lease if they sell the business before the lease has expired. This can be appealing to a buyer of that business to already have the lease in place.
Repairs & maintenance of the premises
The legal obligations of a landlord and tenant in regards to maintenance and repair of the premises are set out in the lease.
In most commercial leases the tenant is responsible for the rented premises including walls, floors, fixtures and inclusions and the landlord requires the tenant to repair and maintain the premises during the lease term.
This will usually not include “fair wear and tear” on the premises, repairs to structural parts of the building or other expenditure of a capital nature (air conditioning, walls and the landlord’s plant and equipment).
The landlord is generally responsible for repairing and maintaining major structural aspects of the building including the roof and the building systems contained in it such as common areas and lifts.
Items such as air-conditioning, cool-rooms, heating fixtures and wall partitioning should be carefully defined in the lease to avoid costs and disagreements as commercial leases are often silent on items such as air-conditioning and cool-rooms which are capital items but used by a tenant in their day-to-day business.
Fixtures such as refrigeration and plant and equipment should be repaired by the landlord but a tenant should ensure that this is written into the lease as it is not an automatic obligation.
Avoiding disputes – common scenarios
The majority of disputes that arise between landlords and tenants and the issue of who is responsible for repairing or maintaining the premises arise out of interpreting the terms of the lease, in particular what is meant by “maintenance” and “repair” and sometimes what is “structural”.
Structural repairs include repairs to the building support system and foundations, flooring and ceiling structures, column support, walls and roof but not partition walls, internal stairways, decorative features such as carpeting and sometimes plumbing depending on the building.
A “repair” is generally defined as an act necessary to fix something that has been damaged, whether accidentally or as a result of continued use. If a tenant or their staff or customers damages part of the premises the tenant is always responsible for the repairs needed to reinstate the item. It is when an item, say a latch on a cool-room door that is used frequently, wears out and requires repair that the landlord and tenant may not agree about who should fix it.
The landlord may say that the latch was damaged due to the tenant’s lack of care or proper or regular maintenance and the tenant may say that it was faulty or had reached the end of its useful life. Disputes may arise and cost the parties time and money so it is best to ensure that the lease is specific in the areas where the potential for disagreement exists.
“Maintenance” is generally considered to be the taking of some action to delay wear and tear or deterioration or breakage of an item. For example cleaning and servicing of plant and equipment or proper disposal of waste and garbage. The common exception from “wear and tear” is where non-structural items such as carpeting have deteriorated over time and should be replaced by the landlord.
If a lease specifies that the tenant clears the drains, for example, and there is a plumbing issue the landlord may say that the reason the drains failed was that the tenant did not do proper maintenance. The tenant may say that the plumbing is old and needs updating and then a dispute exists about who is to fix the costly plumbing problem.
Both parties can lessen the likelihood of dispute by undertaking a full inspection report of the premises and both signing off on the report. This will establish and document what condition the premises was in prior to entry of the tenant and should be carried out and updated yearly.
A commercial lease should contain clear obligations and well-defined standards for the repair and maintenance of the premises under the lease to reduce the risk of dispute and misunderstanding between the parties.
The law is not always clear in this area particularly with regards to repairs and maintenance obligations. Even where legislation may say that a repair is the landlord’s obligation the lease (written by the landlord) can change this and make the tenant responsible. Each party should therefore ensure that they receive their own legal advice to ensure their best interests are protected in the lease.
If you or someone you know wants more information or needs help or advice, please contact us on (03) 9592 3356 or email firstname.lastname@example.org.