Georgina Vlahos

Avoid the Pitfalls of a Commercial Lease

Commercial LeaseIf you’re thinking about entering into a commercial lease contract, you should carefully consider these important aspects of your decision to avoid frustration, unnecessary costs and hindrance to your business.

Zoning and Planning Permit

Before signing a lease, make sure your business meets zoning and planning permit requirements. Zoning regulations may impose restrictions on the type of business activity you intend to carry. If you fail to comply with the restrictions, the council may make you stop using the premises regardless of your leasing arrangements. If that wasn’t bad enough, imagine the cost of vacating the premises, especially if you have already spent money on outfitting it, and relocating elsewhere, assuming you can find something suitable on a short notice. And what are the chances of escaping the breach of contract terms in your lease with the landlord?

Lease Period

Aim to negotiate a long term commercial lease with options to renew at the end of the initial term. A long term commercial lease will facilitate the development of an established business and increase its value should you decide to sell it.

Do not rely on the assumption that the landlord will be willing, or even able, to renew a short term lease. Being a business themselves, they may have other plans for the premises once your term comes to an end or even decide to jack-up the rent seeing how valuable the property is to your business and you would, in their estimation, rather pay up than vacate and relocate.

Mortgagee’s Consent To Lease

If the property you intend to lease is mortgaged, you should (although you’re not required to by law) secure consent from the property’s mortgagee to lease the property to you. You and your landlord may be bound by a contract but no legally binding relationship exists between mortgagee and you. What it means is—should the relationship between mortgagee and your landlord end, the mortgagee will be in a position to terminate your lease and ask you to vacate the premises unless you have their consent to lease (see the Land Title Act 1994 (Qld) s66, s184).

Tenancy Interference

Ensure the lease does not allow the landlord to terminate your tenancy before the end of the lease. Watch out for refurbishment clauses in your contract—you don’t want to find out that a refurbishment clause opened a door to a full scale renovation of the premises, driving away your customers and disrupting your business.

Multiple Occupancy

If you intend to lease in a shared building, make sure the most recent plan is included with the lease. This document should show exactly what area of the building will be leased to you as well as specify your allocated car parking lots and other common areas such as entries and exits, toilets or kitchens. Without details like these a possible dispute resolution will be difficult to achieve.

Professional Advice

Overlooking even a small detail of a commercial lease can be very expensive. For an entrepreneur, it should make perfect sense to hedge against a possible loss before it happens by engaging an experienced solicitor to look after your interests and ensure every aspect of your commercial lease is properly evaluated.

Work Health & Safety Due Diligence

WORK HEALTH AND SAFETY DUE DILIGENCE FOR COMPANY DIRECTORS AND OFFICERS OF ORGANISATIONS

Have you really met this new set of obligations?

A new uniform Work Health and Safety regime has been adopted in Queensland, New South Wales, the ACT, the Northern Territory and the Commonwealth since 1 January 2012.

The new laws comprise the model Work Health and Safety Act 2011 (model Act), the model Work Health and Safety Regulations 2011 (model Regulations), model Codes of Practice, as well as a National Compliance and Enforcement Policy.

1. Are you caught?

The safety obligations under this regime, which we explain below, bind not only company directors, but also “officers” of companies, partnerships and government departments.

The term “officer” includes:

  • de facto directors (i.e., persons acting in the position of directors who gives instruction or guidance);
  • shadow directors;
  • company secretaries;
  • persons who make decisions that affect a substantial part, if not the whole, of an organisation’s business;
  • a person who is able to significantly affect the organisation’s financial standing;
  • a trustee who administers a compromise or an arrangement of the organisation;
  • project managers;
  • lawyers involved in decisions affecting a substantial part of the organisation’s business;
  • receivers;
  • administrators or liquidators of companies; and
  • officers of the Crown.

2. What does “due diligence” mean in the real world?

All “officers” of companies, partnerships and government departments are obliged, under the new regime, to exercise due diligence in order that the organisation that they head or significantly affect complies with the safety duties that are imposed by the new regime.

“Officers” cannot delegate this duty to anybody else.  Moreover, an “officer” can be found to be in breach of that duty even if their organisation has not breached its safety obligations under this new regime.  This means that, if the organisation has been lucky enough to avoid a safety incident, its “officers” could still be in breach of their due diligence duty if they do not have appropriate safety systems in place, etc. Practically, this means that even though you may specifically employ someone or task someone with a role, something like “safety officer” or similar, you still have to check to see that systems are in place to meet the potential safety risks in the workplace.

3. How do I meet these standards?

An “officer’s” exercise of due diligence comprises the following obligations:

  1. Acquiring and maintaining up to date knowledge of Work Health and Safety matters, both in terms of familiarisation with the current law and also in terms of acquiring internal organisation reports regarding safety performance and workplace health and safety regulationsany issues of concern.
  2. Familiarisation with the nature of the organisation’s operations and the hazards and risks associated with these.
  3. Provision of appropriate resources and processes to enable the identification of hazards and their elimination from the organisation.  At a minimum, this requires recruiting appropriate staff members with relevant safety expertise as well as training personnel to ensure that safety is taken into account in decision-making processes.
  4. Reporting and analyzing safety performance so the organisation can promptly respond to hazards.
  5. Ensuring that the organisation implements processes for complying with its safety obligations.  This includes not only reporting hazards, but also consulting with personnel, ensuring compliance with notices issued under the new legislation, and ensuring the training of personnel with regard to Work Health and Safety issues.
  6. Conduct of safety audits and officers’ personal verification that the organisation’s systems ensure compliance with safety obligations.

Overall, the due diligence duty on “officers” requires personal vigilance to ensure that their organisation complies with its safety obligations.

4. What if I am too busy or don’t get around to it?

Penalties apply.

The following penalties are the maximum penalties:

1. Category 1 offence:
The officer without reasonable excuse and with recklessness exposing an individual to a risk of death or serious injury or illness – $600,000 fine or 5 years imprisonment or both.

2. Category 2 offence:
Failure by an officer (without recklessness) exposing an individual to a risk of death or serious injury or illness – $300,000 fine.

3. Category 3 offence:
Officer’s failure to exercise due diligence, but there is no exposure of an individual to a risk of death or serious injury or illness – $100,000 fine.

5. Is there some way to limit my personal exposure?

Although “officers” cannot delegate their due diligence duty to any other person, they should, ensure that appropriate clauses are included in their Employment Contracts to provide for support with the payment of legal advice and costs so they can understand their legal position and respond to any enquiries made by the authorities.  It is also appropriate for organisations and “officers” to ensure that insurance policies maintained by the company provide this style of cover to “officers”.

If you have any further questions, please contact Adam Robinson of our office on (07) 3123 5700.

Due to the impact of specific facts on any given case please treat this information as a general guide and not as legal advice. If you require advice on how to adequately protect your security rights please contact Adam Robinson on 07 3123 5700.