Entering into a fixed term lease can provide you with the security to run your business in the same location for a set period of time. This allows you to execute your growth plans and maintain a loyal customer base. Therefore, what will happen to your business and lease if your landlord sells your building?
The answer lies in a concept called ‘indefeasibility of title’. This article outlines the issues you need to look out for and the benefits of registering your lease so that you can maintain your interest in rental premises.
Indefeasibility of Title
Australia’s property law system is called a Torrens title system. Under this system, a registered property interest has priority over all other interests. This is called indefeasibility of title. For this reason, a registered lease will give you more protection if your landlord sells your building, because the incoming purchaser will be aware of your interest in the property and recognise the lease.
Is Your Lease Registered?
The first thing to consider is whether your lease is registered. If your lease is not registered, and your landlord sells your building, the new landlord is not required to honour your lease.
A registered lease will ensure the lease continues. The new landlord will have to accept you as a tenant and honour the lease agreement.
Further, if your landlord goes into liquidation and you do not have a registered lease, any registered agreements between the landlord and their creditors will be prioritised over your unregistered lease.
For example, if your lease is not registered, the bank or mortgagee could repossess the property without honouring your lease. Part of the process of registering a lease, however, is gaining the mortgagee or bank’s consent. This means that, if you register the lease, you will have priority over the building.
Commercial Lease Registration Requirements
Each state and territory has their own leasing registration requirements. Most states have a requirement that leases exceeding a certain number of years must be registered. This is because leases for a period of time less than this, called short-term leases, are automatically protected 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 what is considered a short-term lease in each state.
|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|
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 the registration of 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.|
Why Have I Been Given a Notice of Attornment?
A notice of attornment is a notice that the new owner may give to you, providing notice that the building has been sold to them. It will direct you to pay all future rent to the new landlord.
If you have paid rent in advance, this should be recognised in the sale price between your old and new landlord and have no impact on you. However, if you owe any rent, you still have an obligation to make those payments to your new landlord.
Similarly, if you have paid a cash bond, this should still be recognised. If you have provided a bank guarantee, you usually provide a new bank guarantee in favour of the new landlord. The old landlord and new landlord will exchange the existing bank guarantee and new bank guarantee at settlement.
Entering into 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 isn’t, ensure you register your lease so that, if your landlord sells the building, you can continue running your business.
If you need assistance with these steps, get in touch with LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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