Understanding Leases #2

6 September 2013 •  Market Information

Make Good: That is the term which defines the process by which the tenant shall repair the premises upon removal of the tenant’s fixtures.

Net Rental: That is where the rent excludes other payments (outgoings) made by the tenant such asfor rates and insurance.

Gross Rental: That is where the rent includes outgoings.

Improvements Rent: Additional rental calculated by applying a pre–agreed interest rate to capital expenses paid by the landlord for additions, alterations or improvements to the property, usually limited to where that expenditure has been required by local or central government. An example of this would be where additional fire detection or fire fighting equipment was required to be installed in a leased building.

Registered and Unregistered Leases: A leasehold interest may be registered against the title to a property. This has advantages in that it is notice to all the world of the lease and it gives protection of the tenant’s interest against, for example, a purchaser of the land and buildings who might otherwise not be aware of the lease and therefore not be bound by it, or against a person or entity who lent money against the land and buildings without knowledge of the lease and who again would not be bound by the lease should their security be realised. Not all leases can be registered however such as where the lease is for part only of a legal title and where there is no separate legal description (lot and DP number) for the land being leased.

Transfers and Assignments: These occur when the leased premises change hands and a new tenant takes over. Registered leases are transferred in the same way as a freehold property interest but unregistered leases are assigned by the parties signing a deed of assignment of lease.

First Right of Refusal: Many long term leases give the landlord the first right of refusal to acquire the lease on sale of the tenant’s business, or the tenant the right to acquire the fee simple when the landlord wishes to sell the landlord’s buildings. First rights of refusal merely ensure that the person wanting to sell offers the property to the landlord or the tenant as the case may be upon terms that are no worse than they are offering to sell them to a third party.

Option: Options differ from first rights of refusal in that the party who has the option (either the landlord or the tenant) may call for the other to sell during the option period. In the case of an option the price must be pre–agreed or a formula for fixing the price must be agreed upon. These are just some of the terms that I am asked about on a regular basis when preparing or reviewing leases for clients. Although important to all leases, the lengthy terms and comprehensive obligations contemplated by leases in the hospitality industry make a basic understanding of these terms all the more important for persons involved in this industry



One comment so far

  1. melody delamere,

    Hi….. can you register an interest over a Motor Camp with a Deed of Lease, the lease does not include the land ?

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