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Minimising the legal costs of negotiating a commercial lease

A commercial lease will be daunting for any party that has not entered into one before. A typical lease agreement can be up to 50 pages covering many topics including rent, outgoings, repair and maintenance, demolition, insurance, and assigning the lease to a third party.

Because of its complexity, most people should, and prefer to, obtain legal advice. And also because of its complexity, there can be long haul of nitpicky negotiations between the landlord and the tenant on the terms of the lease. This inevitably leads to increased legal costs and then the question arises: can I pass my costs to the other party?

These acts cover most, but not all, retail leases.in NSW and ACT: the Leases (Commercial and Retail) Act 2001 (ACT) in ACT (‘ACT Act’) and Retail Leases Act 1994 (NSW) in NSW (‘NSW Act’).

ACT – each party bears its own costs

 For subleases under the ACT Act, the tenant and the landlord bear their own legal costs for the preparation of the sublease. Hence should the legal costs increase due to extensive negotiations between the parties, each party will have to pay their own legal costs. A landlord can’t require a tenant to pay the landlord’s preparation or negotiation costs.

It is also important to note that the landlord must not nominate a lawyer for the tenant. The tenant should obtain independent legal advice from a lawyer that it chooses. If the Landlord nominates a lawyer, in certain cases the landlord may have to pay for the tenant’s legal costs.

NSW – similar to ACT with one small exception

The law in NSW since 2005 is similar in that the tenant and the landlord bear their own legal costs for the preparation of a lease under the NSW Act. The landlord may incur penalties for requiring the tenant to pay.

There is one minor exception to the above, where the landlord can pass on the costs of negotiating and making any changes the tenant requests – but only:

  • Changes that were not already agreed between the tenant and landlord (which the landlord neglected to include); and
  • If the changes are requested after the tenant gives their disclosure statement to the landlord.

 

What should you do?

To keep your costs to a minimum, you should do as much as you can to negotiate the basic terms yourself before lawyers are involved. This means talking direct to the landlord, or their agent, and if possible you should write out the agreed terms for their lawyer to ensure they are captured in the lease itself. Then there will be less for your lawyer to have to fight about.

In NSW, you should hold on to the tenant’s disclosure statement until you are ready to sign the lease, and negotiate as much as you can before a lease is prepared.

See us if you have any questions

Lease agreements can be difficult and complicated for both the landlord and the tenant. You should always seek legal advice before entering into a lease to ensure that you have legal protection and know what you are signing. If you have any questions, please contact 6125 9100 to book an appointment with the experienced lawyers at Chamberlains Law Firm.

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