Lease

Leasing business premises from a SMSF

Many business owners own the commercial or industrial premises that they use to operate their business from.  Often that property is owned by a Self-Managed Superannuation Fund (SMSF).

Leasing business premises from a SMSF is becoming commonplace. SMSFs can be a tax-effective way to create wealth and provide for your retirement, in addition to providing some asset protection benefits however, they come with a requirement to comply with the Superannuation Investments (Supervision) Act 1993 (Cth) (SIS Act) and its Regulations.

Additional obligations apply when the SMSF is using a limited recourse borrowing arrangement and bare trust when borrowing to acquire the premises and consideration ought to be given to who the members of the fund are and what happens if they were to pass away.

One of the leasing obligations on SMSF trustees in the SIS Act is that there be a written Lease in place. Not only does there need to be a Lease in place, but it must be at ‘arms length‘ and on commercial terms.  This effectively means that it must have all of the usual or typical terms that would be expected to be in place if the property was being rented to a third party, for example with market rent being required to be paid in full and on time, with no discounts.

Practically, there are other benefits of having a proper Lease in place and one of them is that on the sale of the business, the Lease can be assigned to the purchaser so that the SMSF continues to get the benefit of the Lease and its protections after you cease to run the business. It also can assist your SMSF to maintain the value of the premises as any purchaser of the land is bound by it, so having a good yield is important.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Commercial Law / Dispute Resolution / Estate Planning / General / Property / Risk management / Superannuation  by 01 Oct 2023 0 comments

Getting out of a Lease

Leases (whether commercial or retail*) come to an end at the End Date or Terminating Date stated on the Lease.

Sometimes there is an early termination provision. Often there is not.

Getting out of a Lease in that scenario is not simple. There are however, ways for a Lease to end earlier than the Termination Date:

  • Surrender; and
  • Assignment or Transfer

Surrendering a Lease

Surrendering a Lease is where both parties (the Owner/Lessor/Landlord and the Lessee/Tenant) both agree for the Lease to end before the Term of the Lease has expired.

A form of Surrender of Lease~ is used for registered Leases as it needs to be registered with NSW Land Registry Services (NSWLRS).

Often, a Surrender of Lease is used as a precondition to a new Lease being granted (either to the same Lessee or a new one, such as on a business sale) as 2 Leases of the whole of the same premises cannot concurrently exist.

Transfer / Assignment of Lease

A Transfer of Lease or an Assignment of Lease is a relatively commonplace transaction in leasing, and is particularly common in relation to a sale of business.

The current Lessee seeking the assignment as part of its business sale (Assignee) effectively asks the Lessor to approve of to the assignment of the Lease in favour of the proposed new Lessee that is buying the business (Assignee).

An assignment is usually done by executing a tripartite Deed of Consent to Assignment of Lease by the Lessor, Assignor and the Assignee. The Lessor usually drafts the Deed of Consent to Assignment of Lease and the Assignor and/or the Assignee pay the costs of it (as they commercially agree).

The form used at  NSWLRS for this purpose is a Transfer of Lease~ and from the transfer date, the Assignee is responsible for complying with the Lease, paying rent and the like.

For Commercial Leases, the Lessor usually seeks information about the proposed Assignee and their financial standing before consenting and, depending on the terms of the Lease, consent can be withheld.

The Assignor may be released from those obligations or may (together with any personal guarantors) remain liable for the compliance with the Lease for the balance of the Term (effectively guaranteeing the new Lessee’s performance) depending on the Lease and the parties’ agreement. The Lease terms can specify the requirements to assignment.

Retail Leases on the other hand are slightly different and involve the issue of new Disclosure Statements etc as required by the Retail Leases Act 1994 (NSW). With Retail Leases, the Assignor can force the Lessee to give permission within a certain time after providing proof that the proposed Assignee has the same or better retailing skills and financial resources than the Assignee.

~In both cases, stamp duty (usually nominal in amount, unless a Lease is being transferred for a monetary payment) is payable and the transactions are performed online via the PEXA system.

Other options

Other options if surrender/assignment are not viable options, can include seeking to sublease part or all of the premises (consent may be required for this) so as to offset the rental expense on the main Lease.

*This article does not apply to residential leases.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Commercial Law / General / Property  by 01 Mar 2023 0 comments

Coronavirus: Commercial Tenancies Code

Further to our COVID-19 blogs on the Federal Government led arrangements on employee standdowns, negotiating changes to commercial leases and the JobKeeper subsidy, the National Cabinet on 07 April 2020 agreed on a mandatory Commercial Tenancy Code previously foreshadowed as part of the “hibernation” strategy for Australia’s economy.

“preserve the lease, to preserve the relationship, keeps the tenant in their property and keeps the tenant on the lease, which is also good the the landlord… which underpins the value of those assets“

The Code applies to tenancies where either the Lessee/Tenant or the Lessor/Landlord is eligible for the JobKeeper program.

The Code is based on a set of leasing principals intended as the Prime Minister says to operate such that it “preserves the lease, preserves the relationship, keeps the tenant in their property and keeps the tenant on the lease, which is also good the the landlord… that underpins the value of those assets“.

The overarching obligations are for landlords and tenants to work together in an honest, open and transparent manner and to negotiate in good faith on a lease by lease basis so as to mitigate the impact of the Coronavirus on the lease arrangements.

The Leasing Principles themselves include:

  • Landlords must not terminate the lease due to non-payment of rent during the pandemic period*
  • Landlords must not draw on a Tenant’s security (bank guarantee, personal guarantee or cash bond etc) during the pandemic period
  • Tenants must honour the Lease
  • Landlords must reduce rent proportionate to the trading reduction in the Tenant’s business over the course of the pandemic period through a combination of:
    • waivers of rent (accounting for at least 50% of the rental reduction); and
    • deferrals of rent (spread over the remaining time on a Lease and for no less than 24 months)
  • No interest, fees or charged are to be imposed  on the rent waived or deferred
  • Rent increases (other than Retail Leases based on turnover) are frozen during the pandemic period
  • Any statutory or insurance charges passed on to the tenant are to reduced in the appropriate proportion
  • Tenants should have an opportunity to extend the Lease period  of the rent waiver/deferment period
  • A binding mediation process will regulate these co-operative arrangements.

*The pandemic period is from 03 April 2020 and for the period during which the for the period during which the Commonwealth Government’s JobKeeper program remains operational.

To view the Prime Minster’s statement following the National Cabinet meeting here.

The States and Territories will legislate these arrangements as soon as is possible.

Banks are urged to support landlords in a similar manner.

Residential tenancies remain a State and Territory issue, not being determined by the National Cabinet. To register your business’s interest in the JobKeeper system, visit the Australian Taxation Office’s dedicated page.

FURTHER INFORMATION

For further information in relation to legal issues arising from Coronavirus or if you need to discuss how to best deal with commercial tenancy issues, please contact us on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice.

Please contact McKillop Legal to discuss your legal concerns or objectives.

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in Business / Commercial Law / Debt Recovery / Dispute Resolution / General / Insolvency & Bankruptcy / Property  by 07 Apr 2020 0 comments

Coronavirus – Negotiating changes to commercial leases

Any businesses that are experiencing a downturn as a result of the current economic crisis that has come as a result of the Coronavirus pandemic will know that one of the largest expenses, apart from that of staff, is its leasing of premises. We have another article on options for employers including standing down its workforce.

The Government has introduced a range of measures to assist businesses and employees with the ongoing payment of wages with the JobKeeper program and the National Cabinet has agreed to implement a moratorium on the eviction of commercial and residential tenants for 6 months. This will be implemented by the States and Territories.

The Government has suggested that commercial leasing arrangements are a matter that ought to be discussed and agreed between lessors and lessees as it is a very complicated area of law that affects businesses from sole traders to multinational corporations. There are many advantages of having these discussions, rather than seeking to strictly enforce the terms of the previously agreed leases, including:

  • The lessor can retain the lessee in the premises – this will be important for them after the pandemic ends
  • The lessee will need to continue trading from the premises – either during the pandemic and/or after the restrictions on movement are relaxed.
  • The lessor may have mortgage repayment obligations to its bank and will need some level of cashflow to assist it to do this

Any  discussions between lessors and lessees should, in the first instance, be informal and without prejudice to the written lease obligations.

There is a moratorium on evictions, but there’s not a moratorium on the requirement to pay rents. Landlords/Lessors and tenants/lessees not significantly affected by COVID-19 are expected to honour their lease and rental agreements.

Every business and each premises is different so there is no ‘one size fits all’ answer but points for negotiation could include:

  • changing the amount of rent to be paid for a period (say a reduction in rent of 25% for 6 months)
  • a rent free period or a reduced rent period (for example 3 months of no rent payable)
  • a delay in payment of the rent (same rent is payable but the obligation to pay is deferred to a later time).
  • extension of the term of the lease to accommodate any rental concessions

Any agreement that may be reached should be documented in writing and signed, and it may be that the lease if registered will also need to have any changed also registered on title.

There may be situations where no negotiated solution will work and parties may need to rely on dispute resolution procedures either now or at the end of the moratorium period, noting that the moratorium does not relieve a lessee from the obligations under the Lease, just that they cannot have the lease terminated during the moratorium period.

FURTHER INFORMATION

For further information in relation to legal issues arising from Coronavirus or if you need to discuss negotiating changes to commercial leases or licensing arrangements, please contact us on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

Stay up to date - LinkedIn | Facebook | Twitter

in Business / Commercial Law / Debt Recovery / Dispute Resolution / General / Litigation / Property / Risk management  by 29 Mar 2020 0 comments