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In brief - Consider the contract structure, fit out costs and
terms of your lease
As businesses change, so do their requirements for office space
or shop space. This is a brief overview of some of the issues you
should consider when planning a new fit out.
The structure of the fit out contract
One of the most important steps when planning a fit out is to
consider the contract structure. For example, you need to decide
whether you want to enter into one contract with a firm that will
design and construct your fit out, or whether you want to enter
into multiple contracts with multiple companies that each play a
specific part such as designing, managing or constructing the fit
out. Regardless of which approach you choose, it is always best to
get legal advice at an early stage.
Who pays for the fit out?
If you own the premises that you are fitting out, the answer is
quite simple - you pay.
If you lease the premises that require the fit out, you may be
able to negotiate for the landlord to contribute to the cost of the
fit out. Do not forget that if your negotiations are successful,
you should include a clause in your lease about the landlord's
contribution, because it is easier to enforce it if it is in
writing.
The Retail Leases Act
The Retail Leases Act 1994 governs most shop leases
where premises are used for retail purposes and the lettable area
is less than 1,000 square metres. If you carry on a retail business
and the lettable area is less than 1,000 square metres, it is easy
to work out whether your lease is a lease under the Act simply by
looking at your lease or by referring to Schedule 1 of the Act for
a list of businesses covered by the Act.
If your business is not a retail business, or the lettable area
is more than 1,000 square metres, then the Act does not apply to
your business. If this is the case then your lease is governed by
the Conveyancing Act 1919, which is silent on the issue of fit out
costs, so you will need to consult the terms of your lease.
Landlord's contribution to fit out costs
In situations where a lease specifies that the landlord must
contribute to the fit out costs, the Act stipulates that the
maximum amount of the landlord's contribution is to be agreed
by the parties before the lease is entered into. This means that
the landlord is not liable to pay any amount greater than the
agreed amount, even if the fit out ends up costing more than
estimated.
If you lease premises in a retail shopping centre and the
landlord requires a particular standard for the fit out, this
information must be contained in a "tenancy fit out
statement". The effect of this statement is that you do not
need to carry out any work that is not outlined within the
statement, but it also means that you cannot carry out any work
other than as shown in the statement.
What if you already have a lease?
If you already have a lease but you want to refit the premises,
you have two options.
Under the Act you are entitled to refit the premises, subject to
the provision of at least two months' notice in writing of the
proposed alterations to the landlord. Alternatively, you can wait
until it is time to exercise your option to renew the term of the
lease.
Option to renew the lease
Many leases contain options to renew the term of the lease. It
is important from the perspective of both the landlord and the
tenant that these options are carefully drafted, as each party
should be fully aware of its rights prior to exercising the
option.
The majority of option to renew clauses specifically stipulate,
among other things, that the landlord will not contribute to the
cost of refitting the premises. You should double check whether
your option to renew contains a similar stipulation, as it may
influence your decision about whether or not you want to exercise
the option.
In a recent Supreme Court case, Miwa Pty Ltd v Siantan Properties Pte Ltd, a landlord
attempted to avoid paying $45,000 towards his tenant's
refitting on the basis that the option to renew clause was
incorrectly drafted.
In a controversial decision, the Court of Appeal rejected that
argument and instead found that the landlord was required to
contribute to the refitting as stipulated in the option to renew
clause contained within the lease.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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