Most people think about the paperwork a landlord gives a tenant or the right to use the premises for running a business when they think about a retail or commercial lease.
However, a lease is only created legally if a landlord gives a tenant the right to exclusively possess the premises for a certain term. This means that a lease could be unenforceable and invalid without exclusive possession, the premises and a certain term.
We will provide a detailed description of each of these legal elements below.
What is Exclusive Possession?
As a tenant, exclusive possession means that you have the right to exclude all other people from the premises that you are leasing. Except in cases where the landlord is legally entitled to enter, you are allowed to exclude the landlord from the premises.
Situations where the landlord has the right to enter the premises, includes:
- Repairing the premises;
- Viewing the condition of the premises; or
- Terminating the lease because you failed to pay rent or you breached another obligation in the lease.
What is meant by The Premises?
Since as a tenant, you have the right to exclusively possess the premises, it is crucial that the lease sets out what is included in, and excluded from the premises. The premises is often expressed in one or more of the following ways:
- as a kiosk or shop in a shopping centre
- as the entire room, building or floor of a building
- according to the folio identifier of the land
- by referencing other inclusions, or
- by attaching plans of the premises to the lease
Most leases will also grant you the right to use any common property of the centre or building. However, this right is usually not exclusive to you as it is shared with the landlord or other tenants of the centre or building.
When is there a Certain Term?
In order for a lease to be enforceable and valid, it needs to have a certain term. This means the commencement date of the lease is properly and clearly defined. It is insufficient for the lease to commence ‘within a reasonable time of signing the lease’.
Without a date in your lease, the actions and intentions of your landlord, as well as your own actions and intentions, could imply the commencement date. For instance, if you start paying rent and occupying the premises, this could imply that the commencement date of the lease was when you took exclusive possession.
There are also some events that can occur that show that you and the landlord intended for the lease to commence. This can include, for example, construction of the building being complete, existing tenants moving out of the premises or, all of the parties signing the lease.
In most circumstances, the duration is expressed by the number of months or years from the commencement date of the lease and includes any option to renew the lease for a further term.
Rent
It is probable that you will need to pay rent to the landlord in exchange for your right to occupy and use the premises. It is critical to note that it is not a necessary legal element of a lease because you can agree to a rent-free lease with the landlord.
However, if you and your landlord agree that rent should be paid, you need to ensure that you have a clear agreement as to what the amount is. If you have not agreed to an actual amount, this could mean that the lease is not valid.
Key Summary
It is only when a landlord gives you the right to exclusively possess the premises for a certain term, that a lease is legally created. Therefore it is crucial to ensure that you are able to exclude others from the premises and that the amount of rent you are paying, if any, is agreed upon. It is also essential that the area you are leasing, the commencement date and the duration of the lease is clearly defined.
If any of these elements are missing, your lease could be unenforceable and invalid. If you have any questions, contact DF Legal on 02 9774 3175.