In Queensland, it is generally well understood that it is not a requirement to register a lease. However, a lease for a term of more than three years or containing options to renew should be registered in order for the tenant to receive a legal interest in the property and gain certain statutory protections.
Registration of such a lease will afford the tenant certain protections against third parties. For example:
- a purchaser of a property the subject of a registered lease will take the property subject to the terms of that lease; and
- where a mortgagee takes possession of the property that mortgagee will take possession of the property subject to any registered interests including registered leases.
However, the position regarding the protection of a tenant’s interests in relation to rent incentives or abatements as against third parties is not quite so clear. If the incentive is contained within the lease and the lease is registered then it is fair to say that any third party would take the property subject to those incentives and would be bound by them.
Yet landlords will often grant incentives to tenants under separate deeds, often called “side deeds”, the contents of which are described as being confidential and the side deeds are not registrable. The rationale for confidentiality is purely commercial but the consequences for a tenant could be catastrophic.
The grant of incentives enables a landlord to obtain a higher “face” rental whereas the actual or effective rent, after taking account of any incentives, may be substantially less than the “face” rent. There has long been an argument as to whether or not documenting rent incentives by way of side deeds “corrupts” the register and has an effect on property values generally. It is fair to say that a valuer would be unlikely to accept the “face” rent as the actual rental and would most likely conduct their own enquiries to establish the true rental being paid in relation to a commercial property.
Careful consideration needs to be given in relation to protecting rental incentives or rental abatements from a tenant’s perspective.
Ideally from a tenant’s perspective any rental incentive should be included in the lease which is registered on title. The argument would then be that any purchaser of the property would take the property subject to the lease with the rental incentive included.
If the rental incentive is not included in the lease, then a prudent tenant should ensure that there is an obligation on the part of the lessor contained in the side deed compelling the lessor to:
- disclose any incentive arrangements to an incoming purchaser; and
- obtain an undertaking from any purchaser that it will perform and observe the landlord’s obligations under any side deed.
For a tenant, it is critical that a new landlord be obliged honour any obligations contained in a side deed that may remain outstanding when the new landlord acquires its interest in the property. Ideally, the lease or the side deed should provide that the landlord is prevented from selling the property without first ensuring that the purchaser of the freehold executes a deed agreeing to be bound by the terms of the lease and any ancillary documents.
As always we recommend that you obtain timely legal advice so as to ensure that your rights and interests are protected.
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The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.