There may be various situations when a Landlord and a Tenant are not immediately in a position to enter into a lease and commit to the responsibilities that follow. In these circumstances, the parties can enter into what is known as an Agreement for Lease.
Agreements for Lease are often complex and accordingly, it is important that parties to it are acutely aware of their obligations, to limit the possibility of any damaging or unforeseen consequences. This article delves into what an Agreement for Lease is, the circumstances where it may be used or required, and common items that are covered within these commonly used agreements.
What is an Agreement for Lease?
An Agreement for Lease is a binding agreement between a Landlord and a Tenant, where a Landlord agrees to grant a lease of particular premises to a Tenant depending on certain conditional elements being satisfied beforehand.
These agreements are most frequently used where the construction of a premise is not yet complete and as such a lease is not able to be entered into until that time.
When are Agreements for Lease Used?
Agreements for Lease are often entered into for the following purposes:
- Planning – A Tenant may need to obtain approvals from the local council or other authorities, such as those required to carry out their particular business at the premises. A common example that arises is in the childcare industry, where a tenant is required to obtain a license before they are allowed to operate their business.
- Development – The premises has not yet been constructed, and certainly fit out works may need to be completed by either the Landlord, the Tenant, or both. Approvals may also need to be obtained for these works.
- Financing – Tenants might also need to obtain finance to be able to lease the premises, and they may be able to utilize an Agreement for Lease to obtain funding prior to a Lease being entered into.
Items covered in an Agreement for Lease
Fit Out Works
Where premises are yet to be constructed for the purposes of the lease being entered into and the Tenant carrying out their business, the subsequent items are typically covered in an agreement for lease:
- A specifications list that particularises the scope of works being carried out and by whom;
- The manner in which the works are to be executed;
- Variations to the fit-out work and the proper procedure of obtaining either the Landlord or Tenant’s approval to the proposed variations;
- Defects rectification periods;
- A ‘sunset date’ enforces that the works are to be completed within a specific time frame and if not completed, then either a single party or both parties may have the right to walk away from the agreement;
- The requirements for the works being considered as complete, together with the provision of certificates from relevant authorities evidencing that works and items installed are finished and fully operational;
- The agreement will also usually cover the relevant insurances that are required whilst the property is under construction and any warranties that the incoming Tenant may receive from the builders and contractors.
A Landlord can also offer a Tenant an incentive in consideration for entering into the Agreement for Lease and Lease. Incentives can be in various forms, such as rent and/or outgoings free periods.
Additionally, the Landlord can offer a financial contribution, where they may pay for or contribute to certain works required to be carried out at the premises by the Tenant.
Overall, Agreement for Leases can provide certainty and clarity around the terms of a proposed lease arrangement and expedite its success. If you require any assistance or have any general queries in relation to the legal aspects of leases, please contact Rostron Carlyle Rojas Lawyers online, at (02) 9307 8900 or by email at [email protected]
The blog published by Rostron Carlyle Rojas is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.