In the Australian and New Zealand commercial property industries, there are few more important terms than the lease. A lease ensures a mutually beneficial relationship between the lessor or ‘landlord’ and the lessee or ‘tenant’. It acts as the guide and rule book to how each party conducts their business by outlining their respective duties throughout the term of the tenancy.
Leases and legal language can be intimidating so it's vital that property teams are familiar with the terminology used and all the key points commonly presented in documents.
This guide unpacks everything you need to know about commercial leases and lease administration to make sure you’re managing leases effectively. So let’s begin.
Contents
Can lease administration software help?
A lease is the legally binding contract that sets out your rights and obligations as a landlord of a property. It stipulates the terms that ensure a tenant exclusive occupation of a premises for an agreed period of time by guaranteeing regular payment.
Once a lease is in place, lease administration is the process of ensuring the terms of the lease are followed. From receiving rents and conducting lease reviews to managing repairs and maintenance, lease administration is an integral component in managing your real estate portfolio. Understanding key terminology, clauses and timings means that a property manager recognises the ongoing commitments between each party involved in the lease agreement.
A commercial lease contract is an agreement between a landlord and a tenant to use an office, warehouse, industrial property or a similar facility. It provides the tenant with exclusive rights to use a property to run a business.
While the basic framework of lease structures remains the same across Australia and New Zealand, the terminology behind leases differs depending upon where you reside. For example, what is referred to as an ‘outgoing’ in Australia, is defined as an ‘operating expense’ in New Zealand.
The Real Estate Authority of New Zealand states that: "Some large organisations have their own specific lease documents. Others use either the Property Council of New Zealand lease or the Auckland District Law Society (ADLS) lease. There are several versions of each lease, and you need to be able to distinguish between these."
You can find more information on New Zealand commercial lease documents here
When it comes to commercial lease frameworks across Australia, it's important to understand that each state and territory plays by its own rulebook. There is no legislation that governs the entire country which means state-by-state there will be grey areas in lease legislation and management. Working with an experienced property lawyer is vital to navigating this framework. Make sure you check what legislation applies in your region at the websites at the end of this article.
Before a landlord and tenant enter into a lease, they may sign a Heads of Agreement (HOA). While HOAs are not obligatory, they are fairly common practice and will normally set out the terms and commercial aspects of the transaction including the proposed lease term, any specific clauses, key dates, and financial terms. An HOA is considered binding or non-binding which is normally stated clearly within a document.
A commercial lease usually applies to a premises that is used as a warehouse, industrial site or as an office in a commercial building where there is no retail activity.
A lease of a business premises where the permitted use is for selling goods. These shop premises are usually located in shopping centres, protected under state-based retail Acts.
The distinction between a commercial and retail lease is in the use of the premises and if any form of buying and selling to the public is to take place from the premises.
An agreement that offers a shorter, more flexible term between a licensee and licensor. A license agreement creates a legal relationship between two parties, but the licensor does not guarantee the licensee with exclusive use of a premises.
A lease where all operating costs on the property are included in the rental charged and the landlord is responsible for all outgoings. It provides the tenant with no other obligation to pay for costs apart from the agreed rent.
A lease where the landlord has agreed to incur a portion of the outgoings.
Net Lease
This lease requires the tenant to pay a set sum of rent in addition to the cost of outgoings on a premises, such as maintenance and repairs, taxes, council and water rates, strata levies, and management fees.
Once you’re well acquainted with the various nuances of commercial leases, the real work starts as you begin managing everything set out in there. Your key tasks will include:
COVID-19 has brought about important changes to commercial lease legislation across Australia and New Zealand. These changes impose a number of leasing principles to be followed by landlords to grant relief and protections to tenants whose businesses have been impacted by the pandemic. These changes encompass:
A waiver – the tenant no longer needs to pay the amount of rent that is waived.
A deferral – the tenant still needs to pay the amount of rent deferred but they can pay at a later stage.
Please review the specific legislation for your region for further information on COVID-19 policies. Useful links are at the end of this guide.
As you can see, there are numerous activities involved in proper lease management and this creates a significant amount of moving parts to coordinate and stay on top of. This is where technology becomes increasingly important. Automated, intelligent property management software, such as Re-Leased, can simplify how you monitor and renew leases and manage other critical dates from a single dashboard.
By driving workforce efficiency, technology can help commercial property managers and landlords save time and eliminate data redundancy, input errors, and costly missed critical dates.
Information in a cloud-based system is updated in real-time and is the same for anyone who accesses it, providing you with a single source of truth to work from that is accessible from anywhere with an internet connection.
Automation is another big advantage with a cloud-based property management system which frees up your time and removes the risk of human error.
Here are common workflows that are automated using Re-Leased:
- Generate & send rent and operating expense invoices
- Send notifications to tenants & owners
- Track payments & arrears
- Push reminders to your email or phone
- Match payments and reconcile bank accounts instantly
- Generate electronic files to automate payments to owners & creditors
- Generate statements and send to owners and creditors
Understanding and tracking every lease detail is no minor task but it’s vital to effectively managing commercial properties and optimising how they operate to improve returns.
While the lease framework has remained the same for many years in Australia and New Zealand, the advent of tools and software to support and automate these processes has not only streamlined how property managers and landlords work but how they serve their tenants too.
Useful Links & Resources
Australia
Real Estate Institute of Australia - www.reia.com.au
Property Council of Australia - Glossary of terms
NSW
https://www.reinsw.com.au/
https://www.smallbusiness.nsw.gov.au/get-help/bonds/learn-about-retail-leases
https://www.fairtrading.nsw.gov.au/
VIC
www.vsbc.vic.gov.au - Access to Victorian Legislation
https://www.vsbc.vic.gov.au/your-rights-and-responsibilities/retail-tenants-and-landlords/process-for-commercial-tenants-and-landlords/
www.legislation.vic.gov.au - Commonwealth Legislation
www.consumer.vic.gov.au
WA
https://www.smallbusiness.wa.gov.au/business-premises/commercial-tenancy-act
https://www.commerce.wa.gov.au/consumer-protection/commercial-tenancies-covid-19-response
SA
https://www.legislation.sa.gov.au/LZ/C/A/Retail%20and%20Commercial%20Leases%20Act%201995.aspx
QLD
https://www.business.qld.gov.au/starting-business/premises-location/covid-commercial-landlords
New Zealand
https://www.rea.govt.nz/real-estate-professionals/the-sales-process-and-general-guidance/commercial/#Lease-documents
https://www.rea.govt.nz/news/covid-19/