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.

Employment Agreement Fundamentals

Employment Agreement Fundamentals: an Employee or an Independent Contractor?

Imagine, as an employer, you enter into an employment agreement with what you think are independent contractors. You lay down the terms and the conditions of the employment relationship including a specific stipulation that the workers are contractors and not employees; the workers you want to employ agree to these terms and the work gets under way. Time passes by, all is going well until one day several workers attempt to claim entitlements which are usually associated with employees and not contractors such as annual and long service leave. You point out to the employment agreement you have with the workers and refuse to pay. Next thing you know you’re looking for a law firm to represent you in court. employment agreementsAnd here is the bad news – you lose all the way to the Full Court of the Federal Court. Sounds unreal? Maybe, but this is exactly what happened in ACE Insurance Ltd v Trifunovski in January 2013 when the judge Buchanan J found, among other things, “no adequate foundation for a conclusion that the relationship [between ACE Insurance and its agents] was anything other than one of employment.”

Distinguishing factors

The distinction between an employee and an independent contractor is like that now proverbial “elephant test” – hard to describe in precise terms but instantly recognizable when spotted. It doesn’t help that the Fair Work Act 2009, fails to define what an “employee” is.

Over the years, the courts have developed the so called “multi-factorial” test to determine the employment status of a worker. Regardless of what side of an employment relationship you’re on, you’ll do well to familiarise yourself with some of the main factors used by the courts in disputes related to employment agreements:

  • Control – the ultimate control by the business over the performance of work by the worker will indicate an employer-employee relationship. If this test determines such a relationship exists, it’s unlikely other tests will be considered.
  • Representation – a worker is presented to the community as a representative of a business by means of, for example, special uniform, giving out business cards with a trade logo on it or signing off emails with a business signature. The court will likely see such a worker as an employee of a business they represent.
  • Tax – deducting income tax from the worker’s payment will generally indicate a worker is an employee.
  • Equipment – employees are usually supplied with equipment and its maintenance is the business’ responsibility.
  • Remuneration – employees are paid wages based, for example, on time spent on performing work, per item of work performed or commission. By contrast, contractors are usually paid for the completion of tasks which are invoiced by the worker with GST added to it.
  • Employment relationship – an employee can be lawfully dismissed or suspended.
  • Insurance – workers compensation insurance is generally associated with employees while contractors are free to arrange their own insurance cover.
  • Delegation – unlike contractors, employees are not able to delegate or sub-contract their work.
  • Choice of work – generally, contractors are free to work for whoever and whenever they choose while employees are not.
  • Tools and Repairs – generally contractors provide their own tools and are responsible for fixing defective work at their own cost.

Vicarious Liability

An employer is also generally vicariously liable for the negligent acts of an employee and will require insurances to cover such events. A principal engaging a contractor on the other hand is generally not liable for negligence of the contractor and will not require such insurances. However, the status of a contractor can be challenged after an incident has occurred, potentially leaving a principal liable for the negligence of the worker who they thought was a contractor. This can provide serious detriment to a principal with inadequate insurance coverage, particularly where the negligence results in personal injury, disability or death.  We can provide advice on the risk of your arrangements with contractors, and advice on how best to proceed in protecting your interests.

Conclusion

It’s important to realise that what might look like a straightforward, easy to understand employment agreement expressed in clear terms may turn against you if challenged in court. To that end, whether you employ people in your business or are employed, make sure you’re aware of these important points:

  • Australian legislation does not provide a clear distinction between employees and independent contractors.
  • It’s up to the courts to decide what the relationship between a business and a worker is.
  • The courts will look beyond contractual agreements and examine a number of factors to determine the employment relationship.
  • Employers should make sure the employment agreements are not only carefully drafted, but the day-to-day employment relationship is consistent with the employment status agreed upon between an employer and a worker.

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.