What are the rights of a Commercial Landlord?

Introduction

A Landlord's rights arise from the written Lease Agreement between the parties. For example, under a standard Law Institute of Victoria Lease Agreement, a Landlord has the right to:

1. Charge rent and have the rent reviewed in accordance with the Lease.
2. Charge outgoings, which may include rates, insurance charges, and other operation and maintenance costs of the premises. The Landlord should note that, if it is a retail lease, certain outgoings cannot be passed onto the Tenant, such as land tax or capital repair costs.
3. Take a security deposit from the Tenant (by way of a cash bond or a bank guarantee). If the Tenant does not comply with their lease obligations (such as failing to pay rent), the Landlord may use the security deposit to remedy the Tenant's breach and require the Tenant to top up the security deposit. Note that a bank guarantee is usually preferable.
4. Require the Tenant to provide a personal guarantee for the Tenant's obligations (in particular, if the Tenant is a company, the Directors are usually required to provide personal guarantees).
5. Prescribe the scope of the permitted use of the premises, noting that this determines whether it is a retail lease and impacts risk in respect to the Premises.
6. Have the Tenant maintain the premises in the same condition as at the start of the Lease (except the maintenance of Landlord's installations and structures which remain the Landlord's responsibility).
7. Inspect and carry out required repairs on the premises during business hours, after providing reasonable notice to the Tenant.

In addition to the above general terms, Landlords may create other rights by inserting additional provisions in the Lease Agreement (subject to compliance with the law). Accordingly, in order to be well-protected as a Landlord, it is essential to have a well-drafted Lease Agreement in place.

Landlord's rights under more specific circumstances

There are certain other rights to enhance the Landlord's legal and financial position. For example:

Tenant transferring the Lease to a new Tenant

The Tenant must obtain the Landlord's consent to transfer a lease (the Landlord cannot unreasonably withhold consent for a retail lease). The Landlord can require the new Tenant to provide evidence of the Tenant's financial resources and business skills to assist in making the decision. The Tenant should bear any reasonable costs incurred by the Landlord in relation to providing consent and completing the transfer of lease documents.

Landlord selling the premises

The Landlord may access the premises at reasonable times by appointment for the purpose of showing the site to valuers and prospective buyers.

Landlord wishing to redevelop the premises

The Landlord may provide notice to the Tenant to relocate the Tenant or terminate the Lease on the grounds of a proposed demolition, redevelopment or refurbishment of the premises. There must be a legitimate clause in the Lease allowing the Landlord to do so, along with genuine development intent. If it is a retail lease, the operation of such a clause must also comply with the Act, including certain corporation rights.

End of lease

When the term of the Lease comes to an end, the Landlord can require the Tenant to 'make good' the premises. This includes the Tenant removing all of their property, repairing any damages caused, and returning the premises to the same condition as at the start of the Lease. If the Tenant fails to do so, and the Landlord incurs any costs in 'making good' the premises, the Landlord may use the security deposit to cover the costs. The Landlord may seek additional compensation from the Tenant if the deposit is insufficient. The Landlord may also continue to charge rent if the Tenant fails to complete the 'make good' works before the Lease expiry date, as the Lease continues until the 'make good' is done.

If the Tenant abandons goods on the premises and fails to collect them within a certain period, the Landlord may dispose of or sell the goods by following certain steps. For more information on Landlord's rights in relation to a Tenant's abandoned goods, refer to our article: What to do with goods abandoned by a commercial tenant?

Tenant abandoning the premises

If a Tenant abandons the premises during the term of the Lease, the Landlord may re-enter the property for the purpose of inspection, repair or to make it available to prospective new Tenants. The Tenant will continue to be liable for rent until the new Tenant takes possession in anticipation of the Landlord's loss.

Tenant in default

If the Tenant is in default of an essential term of the Lease (such as non-payment of outgoings), the Landlord must first issue a 14 day notice requiring the Tenant to remedy the breach. If the breach continues, the Landlord can terminate the Lease and sue the Tenant for loss and damages.

How can Sharrock Pitman Legal assist? 

Overall, the scope and extent of a Landlord's rights ultimately depend on the terms included in the Lease Agreement. If you require assistance in preparing a Lease Agreement or have questions about leases in general, please contact us on 1300 205 506.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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