Property Law - Benefits of Registering a Lease - A Tenant’s Perspective
In Queensland, it is generally well understood that it isnot a requirement to register a lease. However,a lease for a term of more than three years or containing options to renew shouldbe registered in order for the tenant to receive a legal interest in theproperty and gain certain statutory protections.
Registration of such a lease will afford the tenant certainprotections against third parties. Forexample:
- a purchaser of a property the subject of aregistered lease will take the property subject to the terms of that lease; and
- where a mortgagee takes possession of theproperty that mortgagee will take possession of the property subject to anyregistered interests including registered leases.
However, the position regarding the protection of a tenant’sinterests in relation to rent incentives or abatements as against third partiesis not quite so clear. If the incentiveis contained within the lease and the lease is registered then it is fair tosay that any third party would take the property subject to those incentivesand would be bound by them.
Yet landlords will often grant incentives to tenants underseparate deeds, often called “side deeds”, the contents of which are describedas being confidential and the side deeds are not registrable. The rationale forconfidentiality is purely commercial but the consequences for a tenant could becatastrophic.
The grant of incentives enables a landlord to obtain ahigher “face” rental whereas the actual or effective rent, after taking accountof any incentives, may be substantially less than the “face” rent. There haslong been an argument as to whether or not documenting rent incentives by wayof side deeds “corrupts” the register and has an effect on property valuesgenerally. It is fair to say that a valuer would be unlikely to accept the “face”rent as the actual rental and would most likely conduct their own enquiries toestablish the true rental being paid in relation to a commercial property.
Careful consideration needs to be given in relation to protectingrental incentives or rental abatements from a tenant’s perspective.
Ideally from a tenant’s perspective any rental incentiveshould be included in the lease which is registered on title. The argumentwould then be that any purchaser of the property would take the propertysubject to the lease with the rental incentive included.
If the rental incentive is not included in the lease, then aprudent tenant should ensure that there is an obligation on the part of thelessor contained in the side deed compelling the lessor to:
- disclose any incentive arrangements to anincoming purchaser; and
- obtain an undertaking from any purchaser that itwill perform and observe the landlord’s obligations under any side deed.
For a tenant, it is critical that a new landlord be obligedhonour any obligations contained in a side deed that may remain outstandingwhen the new landlord acquires its interest in the property. Ideally, the lease or the side deed shouldprovide that the landlord is prevented from selling the property without firstensuring that the purchaser of the freehold executes a deed agreeing to bebound by the terms of the lease and any ancillary documents.
As always we recommend that you obtain timely legal adviceso as to ensure that your rights and interests are protected.
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The material distributed is general information only. The information supplied is not and is not intended to be, legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.
