A fixed-term lease can provide security to run your business in the same location for a set period. This allows you to execute growth plans and maintain a loyal customer base. But what happens to your business and lease if your landlord sells the building? The answer lies in the concept of ‘indefeasibility of title.’ This article outlines the issues to watch for and the benefits of registering your lease to maintain your interest in the rental premises.
Indefeasibility of Title
The Torrens title system is Australia’s property law system. In this system, a registered property interest takes priority over all other interests, known as indefeasibility of title. Therefore, registering your lease offers more protection if your landlord sells the building, as the new owner will recognise your interest in the property and honour the lease.
Is Your Lease Registered?
Consider whether you have registered your lease. If you have not registered your lease and your landlord sells the building, the new landlord does not need to honour your lease.
A registered lease will ensure its continuation. The new landlord must accept you as a tenant and honour the lease agreement.
Furthermore, if your landlord goes into liquidation and you have not registered your lease, any registered agreements between the landlord and their creditors will take priority over your unregistered lease.
Continue reading this article below the formCommercial Lease Registration Requirements
Each state and territory has its own leasing registration requirements. Most states require you to register leases exceeding a certain number of years. This requirement exists because short-term leases, those lasting less than this period, receive automatic protection under legislation.
If you do not have a short-term lease, you should register your lease to gain legal protection and a registered interest on the title. Below, we outline how each state defines a short-term lease.
| State | Definition of Short-Term Lease (including Options to Renew) |
| Queensland | 3 years or less |
| New South Wales | 3 years or less |
| Australian Capital Territory | 3 years or less |
| Tasmania | 3 years or less |
| South Australia | 1 year or less |
| Victoria | The legislation protects all lessees who are in possession of property and have a valid lease.This results in most leases remaining unregistered. |
| Western Australia | 5 years or less |
| Northern Territory | 3 years or less |
Retail Lease Registration Requirements
If you have a retail lease, the requirements are basically the same as for commercial leases. However, some states and territories have additional requirements for registering retail leases.
| State | Additional Retail Lease Requirements |
| New South Wales | If a retail lease is for a term of more than three years, or if the parties to the lease have agreed that the lease is to be registered, the landlord must lodge the lease for registration within three months after the lease is returned to the landlord following its execution by the tenant. |
| Australian Capital Territory | If the tenant requires the lease to be registered, the landlord must take all reasonable steps to hasten registration. |
| South Australia | If the lease is to be registered, it must be lodged within one month of stamping and the tenant must receive their copy within one month of registration. |
| Northern Territory | If the lease is to be registered, it must be lodged within one month of stamping and the tenant must receive their copy within one month of registration. |
This guide will help you to understand your options when you purchase a business with leased premises.
Why Have I Been Given a Notice of Attornment?
A notice of attornment is a notice that the new owner may give to you. It informs you that they have purchased the building and directs you to pay all future rent to them.
If you have paid rent in advance, the sale price between your old and new landlord should reflect this, having no impact on you. However, if you owe any rent, you still need to pay those amounts to your new landlord.
The sale price should also account for any cash bond you have paid. If you provided a bank guarantee, you usually need to provide a new one for the new landlord. The old and new landlords will exchange the existing and new bank guarantees at settlement.
Negotiation and New Lease Terms
There may be instances where the building sale allows tenants to renegotiate their lease terms. This becomes particularly relevant if the lease is nearing its end or if you need to address pressing issues. Tenants may seek to leverage this situation to secure more favourable terms, such as:
- reduced rent;
- improved maintenance responsibilities; or
- upgrades to the property’s fitout or communal areas.
Key Takeaways
Entering a commercial or retail lease is a big decision for your business. It provides certainty and allows you to plan for future growth. To avoid concerns about your landlord selling the building in the future and risking your lease, you should:
- check with your lawyer if your lease is a short-term lease; and
- if it is not, ensure you register your lease so that you can continue running your business if your landlord sells the building.
If you require assistance with your lease, our experienced leasing lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
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