Commercial Lease vs Commercial Tenancy Agreement (CTA)

We often have landlord clients ask us if it is ok to enter into an REIQ Commercial Tenancy Agreement (CTA) as opposed to a full commercial lease which has been professionally drafted by a lawyer.  We advise landlords against entering into a CTA as we are of the view that it offers limited protection compared to a properly prepared lease.  Some of the main issues with a CTA include:

  • It does not have any provision for a bond (either cash bond or bank guarantee)
  • It contains limited make good provisions
  • There are no provisions for personal guarantees from the directors/trustees of the tenant company/trust
  • It cannot be registered on title
  • It cannot be used where the term (including options) are more than 3 years
  • The tenant is not required to properly insure
  • There is no requirement on the tenant to pay for water, gas, telephone and electricity usage
  • The outgoings that can be charged to the tenant are limited
  • There are no terms covering specific issues/matters concerning the property such as car parking, licenced areas, leases for part of a building/lot, storage spaces etc

In essence, a CTA document lacks a lot of substance when it comes to properly protecting the landlord’s rights and ensuring the tenant complies with its obligations.  There is no substitute for a properly drafted lease prepared by a lawyer experienced in leasing.  A CTA may be useful for small scale leases over short periods of time (such as 12-18 months), however any landlord should weigh up the risk of losing certain rights when using a CTA compared with a commercial lease prepared by a lawyer.  Don’t be fooled into thinking that a CTA is a cheaper option – when a problem arises (as they often do during leases) you will wish you had the protection of a well prepared lease document.

Smith & Stanton has a number of lawyers who are very experienced in all aspects of leasing.  If you need a lease prepared, or need advice on a lease or leasing issue, please contact one of our lawyers that specialises in this area.

For more information or to request an appointment, please get in touch with us today.
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