If you are a landlord entering a commercial lease, drafting your lease to protect your legal and commercial interests is vital. Your lease can include bespoke conditions, often referred to as special conditions, to capture the specific agreement which you have made with a tenant that may deviate from the standard leasing terms and conditions. This article will explain what special conditions are, why they are essential and when you should include them in your lease. It will also set out examples of common special conditions contained in commercial leases.
What Are Special Conditions?
Special conditions are additional clauses or provisions that are attached to a standard lease. Essentially, special conditions:
- reflect a specific obligation; or
- they may refer to the happening of a future event and how the parties agree to deal with that situation or event.
For example, a right of first refusal to buy the property if the landlord offers it for sale. If there is something you and the tenant have agreed to, this can be added to your standard lease as a special condition.
Another typical example of a special condition is a rent-free period. If you have agreed to give the tenant a rent-free period, you can insert a special condition into the lease stating that the tenant does not have to pay rent for the set period.
Why Should I Include Special Conditions in My Lease?
There are several reasons why you, as a landlord, should include special conditions in your commercial lease.
Firstly, they will protect you during the term of the lease in situations where the parties want to state how certain events should unfold or be interpreted. By including the agreement with the tenant in the special conditions, both parties will know what they must do. This will reduce the risk of disputes arising during the lease.
Secondly, special conditions are specific to the property you are leasing out. For example, if you are leasing out an old building, you may want to insert a special condition saying that the tenant accepts the current condition of the building as it is. This places an obligation on the tenant to ensure the building is structurally suitable for their business needs.
Thirdly, they allow your lease to be tenant-specific. For example, if you have agreed to give the tenant three car spaces, you can include this as a special condition. This is a something that was explicitly agreed for the tenant and would not be included in a standard lease.
What Are Some Common Special Conditions I Could Include in My Lease?
Lease Conditional Upon Event
There are often events that must happen before a lease can be valid. For example, if you are leasing a restaurant to a tenant who is applying to have a liquor licence transferred into their name. They will not be able to operate without the licence, so the lease is dependent on whether the transfer happens. Here, you can insert a special condition that states that the lease will be conditional upon the tenant obtaining the liquor licence within a certain period. This means that if the tenant cannot get the licence, both parties can walk away from the lease.
Another common example of this is where a tenant needs to obtain council approval for the way they want to use the property. If a tenant is not sure the council will approve, a special condition making the lease conditional on council approval is appropriate.
Fit-out is the process of making a space suitable for use. Typically, fit-out works are different for every property and every tenant, depending on their business. Thus, it is common to have a special condition outlining:
- what fit-out works are necessary;
- who will do them;
- who will pay for them;
- what guidelines they must follow; and
- what time they must be completed by.
For example, a special condition could state that “the tenant will install a new shop front, at their cost, within two weeks of the commencement date”.
Make Good Requirements
At the end of the lease, the tenant is responsible for returning the property to the same condition it was in when they moved in. What this entails depends on the condition of the property at the beginning of the lease and what works the tenant has done since then. Make good requirements are different for every property and are commonly included as special conditions.
For example, if there are some parts of the tenant’s fit-out that you want to keep in the property, you can insert a special condition saying that the tenant must remove all of their property except for those particular items.
As the landlord, you have the right to pass on your reasonable expenses associated with the property. These expenses are known as outgoings. Outgoings can include:
- council rates;
- taxes; and
- other building costs.
Often, the landlord and tenant will agree what each party will pay outgoings. If an agreement is reached, it should be outlined in a special condition. For example, the special condition could state that the tenant will pay for utilities they use, but not for the building outgoings.
It is standard practice for tenants to pay for the air-conditioning that they use. It is also common for tenants to pay for maintenance and servicing of air-conditioning. This, however, depends on the agreement between the tenant and landlord.
So, as the landlord, you may want to insert a special condition outlining the tenant’s obligations. For example, the special condition could state that the tenant is responsible for maintaining service and contract for the air-conditioning.
If you are providing services, such as wireless internet, for the tenant, you may want to include a special condition that protects you in situations where you cannot provide the service. You could add a special condition that states that the landlord does not warrant the quality of the internet. This would protect you from instances outside of your control.
Special conditions set out specific obligations and requirements that you have agreed to with the tenant. If these are not already in your standard lease, you should include them as a special condition. As the landlord, including special conditions in your lease can provide several short and long-term benefits, including:
- protection during the term of your lease;
- making your lease specific to the property;
- the ability to cater to the tenant’s particular needs.
If you have any questions, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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