Reading time: 4 minutes

An agreement for lease is a binding agreement between a landlord and prospective tenant. It sets out the rights and obligations of parties and limits the potential of disputes arising. An agreement for lease is most commonly used when premises are not yet ready to be leased because they are still under construction. The document provides certainty for the landlord and prospective tenant and protects the interests of both parties.

This article looks at the reasons why you need an agreement for lease, and what you should include in the agreement. 

When Do You Require an Agreement for Lease?

If a landlord and prospective tenant need to satisfy requirements before a lease takes effect, they should draft an agreement for lease. This agreement is commonly used where:

  • a building is being constructed or renovated;
  • the premises are being built for a particular purpose specified by the tenant;
  • the tenant requires permission from a third party, such as the council, to use the premises; or
  • a former tenant still occupies the premises, and the tenant will not move in for some time but wants to secure the premises.

Why Do You Require an Agreement for Lease?

An agreement for lease is an important document because it protects the interests of the landlord and prospective tenant. It creates a binding obligation on the landlord and tenant. This means there is an expectation they will each fulfil their requirements under the agreement.

An agreement for lease is, therefore, beneficial for both parties. For the landlord, it guarantees a tenant and future rental income. For the tenant, it provides certainty of future possession of the premises.

What Should You Include in an Agreement for Lease?

Both the landlord and tenant are vulnerable to suffering loss if they have not drafted the agreement for lease correctly. This is what you should include in your agreement:

The Lease

You should make sure to attach the actual lease to the agreement. It should be complete, except for the terms that need to be drafted after the premises are built.

This is important so you understand the terms of the lease before you enter into a binding arrangement.

Fitout Works

You should be clear about the scope of work for both the landlord and tenant. You should also include a mechanism to determine the commencement date of the lease.

Sunset Clause

A ‘sunset’ date allows a party to terminate the agreement if the other party has not met conditions by a specific date.

You should check if the agreement allows you to extend the sunset date due to external factors, such as delays in consent and adverse weather conditions. Such an extension, however, should not be indefinite.

Defects Liability Period

Tenants should ensure the agreement includes a defects liability period. This is the period that begins after the practical completion, which gives the landlord the opportunity to rectify any defects.

This is especially important with newly-constructed or renovated buildings. Generally, tenants want a 6-12 month defects liability period.

Consents as to Permitted Use

Depending on how you intend to use the premises, you may need permission from a third party. Common examples include approval from the council for development or provision of a liquor licence for a business serving alcohol.

It is essential the lease is subject to the parties obtaining the necessary consent. This is so the tenant can use the premises for its intended purpose. The lease should specify who is responsible for acquiring the consent.

Key Takeaways

If you are entering into a lease before the commencement date, you should consider drafting an agreement for lease. The agreement should include:

  • the scope of work;
  • a sunset clause;
  • the defects liability period clause; and
  • a list of the consents to obtain.

It is also essential that you attach the draft lease to the agreement of lease, to ensure you and the other party understand the terms you are agreeing to.

If you need help drafting or reviewing your lease and agreement for lease, contact LegalVision’s commercial leasing lawyers on 1300 544 755 or fill out the form on this page.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Lauren McKee
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards