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PART A

Task 1 10 types of clauses


1. A Rent clause
A rent clause will be required. This is possibly the most important clause.
The amount of
rent to be paid, the commencement of payment, when the
rent is to be paid (whether it's a
week or a fortnight or a month in
advance, for example), how the rent is to be adjusted (in this scenario it is
annually according to the CPI). It should also include the way in which the
money for the rent is to be transferred to the Lessor (for example by EFT).
2. Term and Renewal
The term of the lease and the renewal rights will be separate clauses, with the
term clause referring to the renewal clause. The term and renewal together must
not be less than 5 years. The clause itself should denote the dates of the
commencement and expiry of the lease. The renewal clause should state the
time at which a request for renewal be applied for, it should also detail the mode
of renewal, for example the signing of an Extension of Lease.
3. Outgoings
This will be expressed as a portion of rates, taxes and other outgoings. The
clause should state when the outgoings are payable, that the Lessor shall
provide estimates for the amounts of the outgoings. It should also include what
the Lessee is not liable for and a section that allows the Lessor to engage in any
positive obligation that the Lessee has if the Lessee fails to.
4. Assignment
A clause should specify the rights of assignment under the lease including a
requirement that the Lessee make a request for the Landlords consent before
assigning its interest in the lease. This clause must include a requirement that
the Landlord supply the Lessee with a copy of the disclosure statement given to
the Lessee in the case that the assignment is granted. It should also include
grounds for refusal to grant the assignment of the lease. These grounds would
include grounds prohibiting a change in use without consent, a ground that if the
Lessor believes that the assigned tenant may be unable to meet the Lessor's
financial obligations and also if the proposed assignee is going to engage in a
retail use and is deemed to be an inferior retailer to the Lessee. A commission
for assignment is illegal, as outlined below.
5. Termination/Transfer
Provisions for the the sale by the Lessor of all of the part of his fee simple
interest in the land should be provided, including a provision detailing the way in
which the lease is to be transferred. It may also included a clause detailing the
termination of this lease on the grounds of redevelopment of the premises.

6. Permitted Use
A clause specifying what a permitted use of the premises is under the lease
should be included. In this case the permitted use for the shop to be used as a
cafe. Other permitted uses could also be included.
7. Costs
The costs of the lease preparation and other charges (for example stamp duties
and lease registration fees) would constitute another necessary clause. Danny
can only hold Natalie liable for a maximum of half of the cost of lease
preparation fees.
8. Insurance
A clause outlining the Lessee's insurance obligations with regard to public
liability and plate glass would be required.
9. Variation
As there is an indicating that the Lessee may wish to vary the use of the shop a
clause should be provided that allows for this. This clause cannot include a cost
for the variation as this would constitute a premium under s15 of the Retail and
Commercial Leases Act 1995.
10.Reparation/Refurbishment
This clause would have to be detailed and specific as the Lessor has strict ideas
about the refurbishment that the Lessee must undertake to the shop. The lease
should also include a clause that specifies that the shop is not fit for purpose as
is.

Task 2 Tax
Variation of the lease could constitute a CGT event that could activate the
requirement that capital gains tax be paid if the change in ownership constitutes
a change in majority underlying ownership of the lease.
The granting of a lease according to the GST Act constitutes a taxable supply as
it is a supply of a grant of a right to property in the form of a lease (ss9-10 GST
Act) for consideration (ss9-15 GST Act, in this case, rent) in the carrying on
(ss195-1 GST Act, doing anything in the course of commencement or
termination) of an enterprise (s9-20 GST Act, in the form of a business) within
Australia (involving Australian property). As the lease of the property does not
constitute an export, sale of a going concern, a financial supply or supply of
residential rent or premises, no exemptions from GST apply and therefore GST
will be payable by Danny with regards to the preparation of the lease, he can of
course pass this on to Natalie, but only to the threshold of half the cost of
preparing the lease.

Task 3 Legal Issues


There are a few problematic instructions given by Danny Bomfield. One of the
more obvious ones is that the rent setup proposed by Danny would essentially
amount to being a ratchet clause. S22 (4) of the Retail and Commercial Leases
Act 1995 indicates that a clause that allows for a change to base rent according
to a scale (such as the CPI) that does not allow for the rent to decrease is void.
The lease preparation costs specified are likely not legal as s14 of the Retail and
Commercial Leases Act 1995 specifies that a lessees liability for preparatory
costs cannot exceed stamp duty and government fees and half of other
preparatory costs. Dannys requirement that the lessee pay 55% of the costs of
lease preparation would therefore be unenforceable.
The clause that allows for lockout upon non-payment of rent is legal under s12(5)
of the Landlord and Tenant Act 1936, however this only applies to non-payment
of rent and does not apply to other breaches such as non-payment of outgoings.
If Danny is concerned about non-payment of rent he could also include a clause
that allowed him to distrain the lessees goods on non-payment of rent. This is
provided for in part 2 of the Landlord and Tenant Act 1936.
The lessee cannot be required to pay land tax as stated in s30 of the Retail and
Commercial Leases Act.
The landlords instructions with regards to receiving a 1% commission upon the
assignment of the lease (either as a result of selling the business or the bringing
in of new partners) would not be legal as it would constitute a premium under
s15 of the Retail and Commercial Leases Act 1995. the requirement for payment
upon variation of the lease would also constitute a premium.
The property is quite run down and therefore may not be fit for the Tenants
purposes as-is. The Landlord may therefore wish to give the Tenant notice of the
exclusion of the warranty of fitness for purpose that is taken to be included in the
lease under s18 of the Retail and Commercial Leases Act 1995.
Task 4 Advise Natalie
Merely reading the disclosure statement may not give Natalie enough
information to make a decision regarding signing this lease. As outlined above,
many of the passages that could be in the lease could prove problematic, some
of them aren't legal and if we assume that the lease is created according to
Danny's instructions it could certainly land Natalie in a lot of trouble.
The issues regarding the ratchet clause, the requirement that the lessee pay
over half of the preparation costs, the requirement that land tax be paid (which
is not necessarily going to be on the disclosure statement as it is an illegal
charge) etc. This would result in Natalie being forced to pay sums she is not
legally obliged to pay, and while these clauses would be considered void if she
were to take a case to court, it is clearly advisable that Natalie go through and
negotiate these issues.

Natalie also states that the disclosure statement is all she wants to sign,
obviously, in addition to the disclosure statement she must sign the lease itself
which could potentially contain the illegal clauses mentioned above. Obviously
before signing anything Natalie should engage in the searches mentioned below
in order to determine certain key things about the lease, particularly with regards
to the identity of Danny and his company and their connection to the property.
Task 5 Searches
There are several important searches that should be undertaken before advising
Natalie. The most obvious of these is a Certificate of Title search to determine
and identify the property and the landlord and to ascertain whether authority
exists to grant the lease and other issues related to the ownership and division of
the property. This will also have evidence of easements and encumbrances and
an accurate representation of the dimensions of the shop. This will help to
identify the dimensions of the premises with a degree of certainty to make sure
that the correct portion of the premises is are the premises specified in the lease.
Another important search would be an ASIC search. This would help determine
whether Dannys company is registered and importantly, whether he has the
authority to lease the premises.
A council search is should determine what the zoning restrictions of the premises
are and whether the zoning is suitable for the operation a caf. She should also
look at the zoning restrictions if she wishes to refurbish the shop, and especially
if she wishes to change its use to a 24 hour establishment in the future to
determine whether this would be viable.
An internet search for Danny's company may provide information that would not
necessarily be available via other search options, this may provide access to
news articles and other information regarding Danny and his company's
activities and essentially act as a public review for Danny as a Lessor. Obviously
this search may also provide nothing of use, but it is free and easy and should
definitely be undertaken.
Natalie should also probably engage a tenant representative or leasing agent to
determine whether the lease is fair with respect to the current leasing
environment, whether it is similar to other leases of the same type.
Task 6 - Execution
In order to execute the lease the disclosure statement must be signed by the
Landlord and served on the tenant. The tenant should then sign a receipt of the
disclosure statement before signing the lease (they are not required to do this
but it is a good idea for the landlord to insist).
Danny should then provide the lease for the Tenant to sign.
The landlord should then sign the lease after reviewing the lease once more and
determining the requirements for signing (for example whether Dannys

companys constitution requires certain directors to sign or a director and


secretary) and ensuring any witnesses are present.

PART B

Form 1Disclosure statement under section 12 of Retail and


Commercial Leases Act 1995
Information for lessees
Please read the following information carefully.
What is a lease?
A lease is a very important document. It is a legally binding contract
between the lessor (landlord) and the lessee (tenant). It sets out the
rights and obligations of the lessor and the lessee.
A document that binds the lessee to enter into a lease or to take a shop
on lease for a renewed term should be treated as if it were the lease.
What should I look for in a lease?
The main features to consider are
the term of the lease;
whether there is an option to renew or extend the lease (and the
method of exercising any such option);
the rent and the basis for rent reviews;
the amounts that the lessee will have to pay in addition to rent
eg fit out costs, maintenance and repair costs and shared
operating expenses;
the consequences of breaching a term of the lease.
Make sure you read the whole document and understand the obligations it
will place on you, especially the extra charges in addition to rent that you
will have to pay.
If the lease is a sublease, you should seek information about the lessor's
rights and obligations under the head lease that are relevant to the lease
of the shop.
What information is the lessor required to give me?
The lessor must give you a copy of the proposed lease and this disclosure
statement. The disclosure statement must contain the matters set out in
section 12 of the Retail and Commercial Leases Act 1995.
What should I do before signing a lease or other binding document?
Do not sign until you understand exactly what your obligations under the
lease will be.

Before signing a lease or other binding document, you should obtain


independent legal and financial advice.
You should discuss the lease (or any agreement for a lease) and
the disclosure statement with your own lawyer or leasing adviser.
You should seek advice about the financial commitments under
the lease from your own accountant or recognised financial or
business adviser.
You should also seek advice from an association representing the
interests of lessees.
Before signing a lease or other binding document, oral representations
made by the lessor or the lessor's agent on which you have relied should
be reduced to writing and signed by or on behalf of the lessor.
Before signing a lease or other binding document, the lessee should sign
an acknowledgment of receipt of the disclosure statement.

1Details of shop
Address: 31 The Parade, Norwood, SA.
Lettable area: 60 square metres.
The shop may only be used for: [Specify the permitted uses.]

2Term of lease
Term of lease: 5 years from 1 November.

3Renewal or extension of lease


[Tick 1 box.]

There is no right to renew or extend the term of the lease.

[tick] The lease gives a right to renew or extend the term of the lease
as follows:
For an additional 3 years

4Access to shop
Hours during which the lessee will have access to the shop outside trading
hours: Shop is accessible at any time outside trading hours.
Date on which the shop will be available for occupation: 1 November.

5Monetary obligations
The lessee's obligations to pay rent, to pay or reimburse outgoings, to make
or reimburse capital expenditure and any other monetary obligations
imposed on the lessee are set out in Appendix A. (This would include
purchasing the fridge for $500)

6Retail shopping centre details


[Tick 1 box.]

The shop is in a retail shopping centre within the meaning of the


Retail and Commercial Leases Act 1995.
See Appendix B for details.
[tick] The shop is not in a retail shopping centre within the meaning of
the Retail and Commercial Leases Act 1995.

7Consequences of breach
The legal consequences of early termination of the lease by the lessee as set
out in [insert clause numbers or other identification of relevant components
of lease] of the lease are as follows:
If rent is not paid, a lockout from the premises. If rent is not paid following a
lock out distraining of the Lessee's possessions
The legal consequences of other breaches as set out in [insert clause
numbers or other identification of relevant components of lease] of the lease
are as follows:
[Insert brief description.]

8Warnings
Oral representations made by the lessor or the lessor's agent on which the
lessee has relied should be reduced to writing and signed by or on behalf of
the lessor before the lessee enters into the lease.
The lessee should obtain independent legal and financial advice before
entering into the lease.
Date:
Signature of lessor:
Name:
Address:

Acknowledgment of receipt
I acknowledge receipt of this disclosure statement including:
[Tick 1 or more boxes as applicable.]
[tick] Appendix AMonetary obligations under lease

Appendix BRetail shopping centre details

[tick] AttachmentShop fitting or refitting obligations


[tick] AttachmentFixtures, plant or equipment obligations

AttachmentSinking fund obligations

AttachmentProposed changes to shopping centre

AttachmentCurrent tenant mix

AttachmentProposed changes to current tenant mix

AttachmentDetails of tenant association

Date:
Signature:
Name:
Address:

Appendix AMonetary obligations under lease


Part 1Rent
1Base rent
The base rent payable for the shop is or is calculated as follows:
$3,000 per month plus GST.

2Basis on which base rent may be changed


The base rent may be changed on the following basis:
Adjusted annually by CPI, but cannot decrease.

3Other rent
Other rent payable for the shop is or is calculated as follows:
[Insert amount or formula.]

Part 2Capital expenditure


4Permissible obligations (section 13 of Retail and Commercial
Leases Act 1995)
The lessee will be liable for capital expenditure as follows:
[Tick 1 or more boxes as applicable.]

to pay or reimburse the cost of making good damage to the


premises arising when the lessee is in possession or entitled to
possession of the premises
[tick] to fit or refit the shop as set out in the attachment marked "Shop
fitting or refitting obligations"
Details about required refurbishment.
[tick] to provide fixtures, plant or equipment as set out in the
attachment marked "Fixtures, plant or equipment obligations"
Purchase of a fridge for $500

to contribute to a sinking fund to cover major items of repair or


maintenance as set out in the attachment marked "Sinking fund
obligations"

[The attachment must include reasonable details of the lessee's


obligations.]

Part 3Outgoings
5Categories and estimate of annual liability
The lessee will be liable to pay or reimburse outgoings as follows:
Category of outgoings

Estimate of lessee's annual liability

local government rates and charges

$4,023.50

electricity

$ Not Specified.

gas and oil

$ Not Specified.

water and sewerage rates and charges

$295

sewerage disposal and sullage


energy management systems
air conditioning/ventilation

$ Not Specified.

building intelligence and emergency


systems
fire protection
security
lifts and escalators
public address/music
signs
public telephones
$2,034, public liability and plate glass not
specified.

insurance
pest control
uniforms
car parking
child minding
gardening
cleaning
audit fees
management costs

$5,700

maintenance and repairs


other [specify]
Total

$12,052.5

[Tick 1 box.]

The lessee is liable for the full amount of the outgoings.

[tick] The lessee is liable for a proportion of the outgoings calculated


according to the following formula:

[If different according to category, provide category and formula in


each case.]

6Margin of profit
[Tick 1 box.]
[tick] The amount the lessee is required to pay towards outgoings does
not include a margin of profit for the lessor.

The amount the lessee is required to pay towards outgoings


includes a margin of profit for the lessor as follows:
[Provide the percentage profit or the basis on which the profit is to be
calculated.]

Part 4Other monetary obligations


7Other
[Tick 1 box.]
[tick] The lessee will not be liable for any other kinds of monetary
obligations.

The lessee will also be liable for the following kinds of monetary
obligations:
[Provide details of other kinds of monetary obligations and, if possible,
an estimate of the annual cost of complying with those obligations.]

Appendix BRetail shopping centre details


1Shopping centre details
Name of shopping centre:
Address of shopping centre:

2Number of shops and lettable area


Total number of shops in shopping centre:
Total lettable area of shops in shopping centre:

3Parking facilities at shopping centre


Number of parking bays for customers of shop:
Number of parking bays for lessee and lessee's employees:

4Facilities and services provided by lessor


The lessor provides the following facilities and services:
[Describe nature of facilities and services.]

5Proposed changes to shopping centre


[Tick 1 box.]

No changes to the shopping centre are proposed.


It is proposed to make changes to the shopping centre as follows:
[Describe the nature of the changes including any changes to the
buildings, parking and surrounding roads and, if a development
application is to be lodged, details of when and with whom it is to be
lodged. Attach details (in attachment marked "Proposed changes to
shopping centre") or include details of where to obtain further
information.]

6Core trading hours


Core trading hours:

7Current tenant mix and any proposed changes


The current tenant mix is shown on the attachment marked "Current tenant
mix" comprised of a floor plan showing tenancies and common areas.
[Tick 1 box.]

No changes to the current tenant mix are proposed.

It is proposed to change the current tenant mix as follows:


[Describe changes or show on attachment marked "Proposed changes
to current tenant mix".]
The lease may contain provisions governing the process for changes to the
tenant mix.

8Introduction of competitor
[Tick 1 box.]

The lessee is assured that the current tenant mix will not be
altered to the lessee's disadvantage by the introduction of a
competitor.

The lessor is not prepared to give the lessee an assurance that


the current tenant mix will not be altered to the lessee's disadvantage
by the introduction of a competitor.

9Tenant association
[Tick 1 box.]

There is no tenant association for the centre.

The attachment marked "Details of tenant association" gives


details of the nature of the tenant association for the centre, the
voting rights of members and the contributions payable by members.

10Advertisement etc of shopping centre


[Tick 1 box.]

Contributions are not required towards the costs of advertising


and promoting the shopping centre.


The following is an estimate of the annual contributions that are
or may be required towards the costs of advertising and promoting the
shopping centre:
[Insert estimate.]