As a tenant of a commercial or retail premises, you might come across unwanted invoices from your landlord or their lawyer. It is important to know when you are responsible to pay these invoices. The RMB Commercial Law Division explains.
Lease preparation costs:
Retail leasing laws in NSW prohibit the landlord from passing on their legal fees associated with lease preparation to their tenant. However, if you have asked for changes to the lease after you receive the tenant’s disclosure statement, you may be required to pay for those changes.
Commercial tenants aren’t so lucky. The majority of landlords will attempt to pass on their legal costs for lease preparation.
We recommend being upfront with the landlord or agent about your expectations around lease preparation costs and document the agreed position in a heads of agreement.
Transfer of lease:
If you need to transfer your lease to another party during the term of the lease (e.g: if you sell the business), your lease will usually require you to pay your landlord’s legal costs associated with the transfer, including their costs of considering the request. Even if the transfer does not progress, you may be liable for the landlord’s legal costs.
It is best practice to discuss these costs with the assignee (being the entity that is taking on the lease) and ensure any agreement regarding payment of the landlord’s legal fees is documented in a business sale agreement (if applicable) and a deed of assignment of lease.
Default:
It is common for all leases to contain a provision requiring tenants to pay the landlord’s legal costs arising from the tenant’s default under the lease – such as the landlord’s legal fees to send a letter of demand to a tenant requesting arrears be rectified. Such legal costs can be significant and increase quickly. If you are in default, it is best to address the situation as soon as possible before legal costs and interest accrue.
Consent:
Again, look to the terms of your lease when working out if you are responsible for the landlord’s legal fees associated with your request for their consent. Such a request might arise from a proposed fit out or a change in the permitted use of the premises.
If you are requesting consent, it is good practice to request an estimate of the landlord’s legal fees to allow you to make a commercial decision about proceeding with the request.
For further information about this topic, you can contact our office by phone on Freecall 1800 681 211 for a consultation, or use our 'Ask a Question' tool on our website.