Have you been asked to pay your landlord’s legal costs for a new lease?
Did you know that in some circumstances the landlord is not allowed to seek payment or accept payment of its legal costs for a new lease?
Entering a new lease for the first time can be expensive and quite daunting. Often you are asked to make various payments in respect to the premises.
Recently, one of my clients entering into a new lease was asked to make payment of the landlords’ legal costs for preparation of the lease.
Upon review of the lease, it became clear that the landlord was not allowed to charge for its legal costs. This was because the lease was a retail lease which was prepared by the landlord for the first time.
What is a Retail Lease?
Commercial leases can be either Retail Leases or non-Retail Leases.
A Retail Lease relates to commercial premises that are wholly or predominantly used for retail shop business.
However, in some circumstances, including but not limited to the following, the lease will not be deemed to be a retail lease:
- Shops that have a lettable area of 1,000 square metres or more,
- Shops that are used wholly or predominantly for the carrying on of a business by the lessee on behalf of the lessor,
- Any shop within premises where the principal business carried on on those premises is the operation of a cinema, bowling alley or skating rink and the shop is operated by the person who operates the cinema, bowling alley or skating rink,
- Leases for a term of 25 years or more (with the term of a lease taken to include any term for which the lease may be extended or renewed at the option of the lessee),
- Leases entered into before the commencement of this section,
- Leases entered into under an option granted or agreement made before the commencement of this section,
- Any other lease of a class or description prescribed by the regulations as exempt from the Retail Leases Act
- Premises used only for any one or more of the purposes listed in Schedule 1A (Excluded uses) of the Retail Leases Act
- Premises of a class or description prescribed by the regulations as exempt from the Retail Leases Act.
A non-Retail commercial lease is usually for premises that are used as a warehouse, industrial site, or an office in a commercial building with no retail activity.
What Can the Landlord Charge You For?
It is important to understand that if the Lease is a retail lease then the landlord cannot charge you for its legal costs for the preparation of the lease.
The landlord can, however, charge the tenant for its reasonable legal costs for amending the Lease, as long as the amendments don’t relate to:
- Inserting or varying particulars of the Lease, the rent or term of the Lease.
- Remedying a failure by the landlord to include or omitting a term of the proposed lease that was previously agreed to
- Amendments requested before the tenant was provided with a disclosure statement under the Retail Leases
If you are required to make payment of the landlord’s legal costs in relation to amendments, then the landlord’s solicitor must provide you with an invoice as to such costs.
Entering into a lease can already be very expensive. In order to ensure that you don’t incur any unnecessary costs, it is important to understand the type of lease you are entering into. If you are entering into a retail lease, then you may not need to pay any legal costs of the landlord.