When leasing commercial property, it is important to keep in mind that where part of a parcel of land is leased for a period of more than 10 years (including all the options), there is a legislative requirement that approval be obtained from the local Council. This is because the lease of part of land for a term of more than 10 years is considered to be a subdivision of that land. There are some interesting anomalies in the legislation which stipulate that if all of the leased area is contained within a building, there is no requirement to get Council approval. Therefore, where a lease for more than 10 years includes an open or exposed area, such as a balcony or car park, it is likely that Council approval will be required. If however the leased premises is fully contained within the building, Council approval may not be necessary. There may be ways to avoid having to obtain Council approval if a licence to occupy (rather than a lease) is used for any part of the exterior of the building which is to be leased.
Until recently, it was regular practice to get around the legislation to register consecutive leases in Titles Office. In other words, the landlord and tenant sign a 10 year lease, then sign a second 10 year lease with an advanced commencement date (rather than one lease with a 10 year option). There is recent case law to suggest that this practice will no longer be allowed and that consecutive leases will be considered one lease, therefore requiring Council approval.
It is important that the legislation relating to long term leases is understood, as it can have major impacts on both landlord and tenant. If you intend entering into a lease for more than 10 years, and the area being leased is part of a lot, you should check with us prior to entering into any agreement to lease, as there may be implications that neither party has anticipated.
