When you think about a retail or commercial lease, you may imagine the:
- paperwork that a landlord gives a tenant; or
- right to use and occupy premises for running a business, such as a retail shop or commercial office.
However, a lease or a “leasehold interest” will only be created legally if a landlord gives a tenant the right to possess the premises exclusively for a certain term. Essentially, this means that a lease could be invalid and unenforceable without these three legal elements:
- exclusive possession;
- the premises; and
- a certain term.
In this article, we will provide a detailed explanation of each of the legal elements of a lease.
Exclusive possession means that you, as the tenant, have the right to exclude all other people from the premises that you are leasing. This right even allows you to exclude the landlord from the premises, except where the landlord is legally entitled to enter.
Examples of situations where the landlord has the right to enter the premises, despite your right to exclusive possession, include entering to:
- view the condition of the premises;
- repair the premises; or
- terminate the lease because of your failure to pay rent or breach of another obligation in the lease.
Because you have the right to possess the premises exclusively, it is essential that the lease clearly describes what is included in, or excluded from, the premises. The premises are usually described in one or more of the following ways:
- as the entire building, floor of a building or room. For example, “Ground Floor of Building X located at 1 Example St, Sydney NSW 2000”;
- as a shop or kiosk in a shopping centre. For example, “Shop 1 in Example Shopping Centre”;
- according to the folio identifier of the land. For example, “Lot 1 in Deposited Plan 000001”;
- by attaching plans of the premises to the lease; or
- by referencing any other inclusions such as storage areas or car parking spaces.
Many leases will also grant you the right to use any common property of the building or centre, such as walkways or garden areas. However, this right is not usually exclusive to you as it is shared with the landlord or other tenants of the building or centre.
For a lease to be valid and enforceable, it must have a certain term. Having a certain term means that the commencement date of the lease is clear and properly defined. It is not enough for the lease to commence “within a reasonable time of signing the lease”. The following are examples of where an actual commencement date can be determined:
- “1 January 2019”;
- “seven days from the completion of the landlord’s fit-out works”; or
- “two days from the date the development approval from the premises is granted”.
If there is no date in your lease, your actions and intentions, as well as those of the landlord, may imply the commencement date. For example, if you start occupying the premises and paying rent, this may suggest that the commencement date of the lease was the date you took exclusive possession.
The circumstances may also show that you and the landlord intended for the lease to commence when a specific event occurred such as when the:
- existing tenant moves out of the premises;
- construction of the building is completed; or
- all of the parties sign the lease.
The duration of the lease must also be clear and properly defined. In most cases, the duration is expressed by a number of months or years from the commencement date of the lease as well as any option to renew the lease for a further term.
It is likely that you will have to pay rent to the landlord in exchange for your right to use and occupy the premises. This payment of rent is not an essential legal element of a lease because you and the landlord can agree to a rent-free lease.
However, if you and landlord agree that rent should be paid, you should ensure you explicitly agree to what the amount is. If you have not agreed to an actual amount, this may mean that the lease is invalid.
A lease will only be created legally if a landlord gives you the right to exclusively possess the premises for a certain term. For this reason, it is essential to ensure that:
- you are able to exclude others from the premises, including the landlord;
- the area you are leasing, commencement date and duration of the lease are clearly defined; and
- the amount of rent you are paying, if any, is agreed.
If any of the above elements are missing, your lease could be invalid and unenforceable. If you have any questions, contact LegalVision’s leasing lawyers on 1300 744 555 or fill out the form on this page.
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