In part 3 of “I am a tenant. What are my rights under a Retail Shop Lease?” we discuss whether or not landlords can request a bond or bank guarantee from their tenants, and if so, under what circumstances, and whether or not landlords have the right to move a tenant to another premises or end the lease before the end of the initial term.
Bank guarantees and bonds
A bond acts as a security to the lease that the landlord can rely on in the event that the tenant is unable, unwilling, or for any other reason cannot meet its financial obligations under the Retail Shop Lease Agreement during or at the end of the lease. The security on which landlords usually depend is typically in the form of a bank guarantee or cash bond. The security is an entitlement under the Act and landlords are able to request this security from their tenants prior to entering into any lease agreement.
If a tenant gives security for the lease in the form of a cash bond, the landlord has a responsibility to lodge this cash bond with the New South Wales Retail Bond Scheme. Following any bond-related dispute, the Retail Tenancy Unit will hold the bond until the parties have resolved the dispute. Usually these disputes are resolved quickly and without starting litigation, as the bond dispute resolution process usually resolves these matters at very little expense to either party. This process is broken up into stages, and each party is encouraged to reach an agreement at the earliest stage possible, whether that involves forfeiting the bond or releasing the bond in full.
In some cases, landlords will prefer a bank guarantee to a cash bond as a form of security. These guarantees assure the landlord that, upon failing to meet financial obligations under the Retail Shop Lease, they will guarantee the performance of these duties. Under normal circumstances, banks that are issued with requests from landlords to meet the financial obligations of the tenant must comply, regardless of whether the landlord’s claims are well founded.
Relocation and early termination
It is important that you and your leasing lawyer read every term in your Retail Shop Lease Agreement before you sign the dotted line. Some landlords will try to include terms that allow them to relocate tenants to different premises or to end the lease earlier than the agreed expiry date. This is normally because the landlord wants to have the option to renovate or demolish the site at their earliest convenience.
While the Act does allow for landlords (or their lawyers) to insert relocation clauses into the retail lease agreement, it also requires as a condition to including such a term that the tenant be given at least 3 months of formal written notice informing them of such a move. The reasonable costs involved in moving to a different location are to be covered by the landlord. These costs can be assessed by an independent surveyor or can be previously agreed between the landlord and tenant. If you find that the new location is unacceptable for whatever reason, you may give the landlord notice within one month of receiving the notice to relocate, and the lease agreement will discontinue at the end of the notice to relocate.
Under the Act, demolition clauses are also permitted. A demolition clause enables a landlord to end the lease early to proceed with renovations or refurbishments of the site. The minimum notice requirement for demolition is 6 months. The tenant may end the lease within the 6-month period after providing the landlord with a minimum of 7 days of written notice.
Be wary of agreeing to any retail lease agreement that imposes these clauses. They can be very expensive for the tenant and are worth negotiating with the assistance of a leasing lawyer. After considering the impact of these clauses, it is important to seek financial and legal assistance to assess the extent to which these clauses should be negotiated. If you receive a notice from your landlord informing you of their plans to demolish or relocate the premises, contact one of LegalVision’s leasing lawyers to assess your rights in such a situation.