Question: What is a Corporate Lessee?Answer:
A corporate lessee is a limited liability (Pty Ltd) company that enters into a lease for a business. For example, to lease a retail premises from a landlord. In Australia, there are four types of common business structures:
- Sole trader
- Company/Corporate Lessee
Differences Between Business Structures
A sole trader or partnership makes a person responsible for the debts and obligations of the business. This is because they personally enter into any legal agreements, such as contracts and leases.
However, a company/corporate lessee is a separate legal entity, owned by the company shareholders. It is the company that enters into legal agreements, not its directors or shareholders. Therefore, people often set up companies to limit their personal liability. If the company fails, creditors can only make a claim against company assets, not the personal assets of directors or shareholders. The only exception is if a company director has personally guaranteed company obligations.
The final business structure is a trust, set up by a formal trust deed. The trust deed appoints a trustee, who is legally able to enter into contracts. The trustee can be either a person or a corporate entity. For example, a limited liability company.
Obligations When Entering Leases
Businesses can enter commercial or retail leases as a sole trader, company, partnership or trust. The difference will be who is the lessee and responsible for lease obligations, such as paying rent.
An individual person will be the lessee where the business enters a lease as:
- a sole trader
- a partnership (all partners will be lessees); or
- an individual trustee of a trust.
In contrast, if a business enters a lease as a company or as a corporate trustee of a trust, the lessee will be a corporate lessee.
A business should consider the advantages and disadvantages of each business structure. They should determine both how they wish to operate their business and how they wish to enter legal agreements, such as leases.