In Sydney we are experiencing a once in a generation property
boom. We are in a market where developers are clamouring for sites
to redevelop. I'm seeing the impact of this on my leasing
practice - receiving a number of enquiries from clients who want to
know what their rights are when their Landlord wants them to vacate
their premises for the purpose of redevelopment.
What does the Lease say?
If your Lease doesn't allow a Landlord to terminate the
lease for the purposes of redevelopment, then a Tenant
shouldn't roll over and surrender their tenancy rights without
ensuring continuity of their business.
Some Leases have clauses that require Tenants to surrender their
Lease in the event that a Landlord serves them a Notice (and there
is a genuine redevelopment proposal). Alternatively, the Lease
might provide for the Landlord to relocate the Tenant to other
premises. The clause may or may not entitle the Tenant to relocate
in such circumstances.
However, if your Lease doesn't have any such clauses, then
the parties will need to negotiate a fair and reasonable settlement
if the Tenant is to surrender their leasing rights. In such
circumstances, the parties need to consider the following:
The likely cost to relocate to new premises
The impact of relocation on the operations of the business
Any lost revenue or down time
The depreciated value of fit out that cannot be salvaged for
any alternative premises
Likely location for an alternative premises (that leaves the
tenant no worse off – either in terms of access to
customers/clients and impact on goodwill) and size of alternative
Terms of any new Lease – who should carry the burden of
higher rent and outgoings?
Cost of designing and fitting out an alternative premises
Amount of notice to give the Tenant.
What if your Lease is a retail lease?
There are specific provisions in relevant retail leasing
legislation (each state and territory has their own legislation
relating to retail leases), which address relocations and
redevelopments of retail premises. You should read these provisions
carefully along with what the terms and conditions of your Lease
New Strata Legislation
In late October 2015 some amendments to existing Strata Titles
Legislation were passed through the New South Wales Parliament. The
changes have not yet come into operation, but some key amendments
will make it easier for a Body Corporate (the collective owners of
the strata building) to agree to sell the building to a developer,
paving the way for a cessation of the strata scheme for the
purposes of redevelopment. As a result of these changes, a
Leasehold interest of the Tenant will not necessarily be protected.
Legislation anticipates compensation being paid to a Tenant, but
the question will be whether any such compensation will be
Other Issues – Compulsory Acquisitions
As the State Government compulsorily acquires properties across
the relevant road and railway corridors, there are questions over
the impact of Leasehold interests. For example, should a Tenant
make good the premises if the property is going to be compulsorily
acquired? The legislation seems to indicate that there needs to be
evidence that the premises will be at the time of acquisition (or
shortly after), pulled down.
What compensation is a tenant entitled to in the event of
compulsory acquisition? Usually the lease will say that the
Landlord is not required to compensate the Tenant and so it will
depend on whether the relevant authority is required to compensate
the Tenant under relevant legislation.
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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