Breaking a Commercial Lease [VIC]

katzensprung on 09/02/2018 - 23:59
Last edited 10/02/2018 - 09:06 by 1 other user

Fellow OzBargainer, I'm reaching out to get some hopefully enlightening input from you:

Writing on behalf of a friend, the current situation summed up in a few words is the following:

Lease of a commercial property under the Commercial Lease Code 143 standard document by the Real Estate Institute of Victoria REIV since March 2017 through a managing agency for an initial 3 years lease agreement. Written notice of the intention to vacate the premise prior to the lease expiry has been given early November 2017 to the managing agency. The amendment of special conditions to the Commercial Lease standard lists the possibility for the tenant to procure a suitable replacement tenant which needs to be approved by the landlord and tenant if the tenant wishes to vacate.

So far so good, seems to be all some standard clause I guess? However, the agency does not seem to be in the interest of finding a new replacement tenant as efficient as possible. Yes, the property is listed on certain websites and a "For Lease" signboard has been put in front of the property.

After the friend advertised the property himself on certain portals, he has been told by the agency that they don't wish any interaction in this process by the current tenant. Also, they request a hefty increase of the monthly rent for the replacement tenant which seem to be unreasonable for the location and explains the low interest of potential tenants. The friend is in regular contact with the agency but gets always told the same excuses with no results. So far there have been a few inspections of the premise by potential replacement tenants with no success of an agreement.

Does this in anyway fall under the Australian Consumer Law which protects against unfair practices? Also, do you think the friend should actively get involved in the finding process against the agencies request to not to?

Final note: Considering to get a lawyer involved with no predictable outcome.

Any input/advises/personal experiences of leaving a commercial lease agreement prior to its expiry is highly appreciated.

Cheers

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  Icecold5000 on 10/02/2018 - 00:04

  +1

  Is your mate leasing it himself or through a company? If so has he given personal guarantee as a director?

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    katzensprung on 10/02/2018 - 11:40

    I believe not. The lease is signed on a Partnership basis

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      Icecold5000 on 10/02/2018 - 13:26

      That rules out putting the company into bankruptcy. Partner are jointly liable as well so be careful.

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  chuxsw on 10/02/2018 - 01:13

  +1

  First up all REIV contracts are written in the favour of landlords or vendors, so damn hard to get out of.
  Commercial leasing as your friend has found doesn't have any of the protections that residential tenancy has. The amendment of finding a replacement tenant is pointless as it still needs the landlord's approval and there is no incentive for them taking someone else on as tenant as they are already getting paid, hold your deposit, can litigate for damages and then relet. Quiet common for smaller businesses even if a company is for the director to guarantee the lease.
  I was in a similar situation with an office lease in inner Melbourne as the GFC hit. I quickly realised I wasn't going to get a good result so gave up the idea of breaking the lease and just sublet a few desks for the remainder (14 months) of the term to subsidise my outgoings without telling the managing agent or landlord as even during inspections it just looked like a few more employees were on site.

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    jason101 on 10/02/2018 - 08:00

    "First up all REIV contracts are written in the favour of landlords or vendors, so damn hard to get out of."

    Tough comment when we are talking about someone who wishes to walk from a signed contract they are breaking.

    Your mate can either:

    1. Pay out his lease
    2. Continue running his business / find someone else to run it and pay the rent
    3. Find another tenant on the same terms as his lease to complete the lease (if the agent unfairly dismisses that tenant, then stop paying the rent and wheel your lawyer out).

    I am not a commercial property expert but I would assume your mate needs no assistance from the agent in order to procure another tenant on his own, once he has found a suitor he can then present this replacement tenant to the agent and the fun can begin at that point in time.

    Letting agents make their money by charging a management fee on the rental paid and by collecting letting fees when leases are renewed and new tenants move in. Having your mate pay nothing and having no tenant in situation is bad for the owner and bad for the agent, so I think would be somewhat counter intuative for the agent to simply not want a tenant in place at all.

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      mskeggs on 10/02/2018 - 10:57

      The business owner will almost certainly have given a personal guarantee, so the lease is getting paid out anyway. The question isn't whether the landlord/agent get paid, but whether the tenant/owner makes a big loss or a small one. The landlord/agent will only assist in finding a new tenant if they will make more money for their trouble than simply taking the current tenant's rent until the lease expires.

      Almost always, the answer is number 2, to employ somebody to run the business until the lease is up, while the business owner gets a job again during the week and works the weekend in the business.
      It costs the tenant/business owner $1000 a month or whatever the operation loses, but it is a better option than the $xxxx a month loss the rent on an empty premises costs.
      It is a sucky lifestyle for the next 2 years, but it really motivates to understand the risks of business.

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    meowsers on 10/02/2018 - 11:39

    The same clause in that contract likely also states that they shall not unreasonably withhold this approval. The alternative I see here is if they do not give approval, and you've given them multiple options/tenants would be to litigate this as unconscionable conduct.

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  Baysew on 10/02/2018 - 09:25

  Contact The Victorian Small Business Commission

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  JimmyF on 10/02/2018 - 14:26

  However, the agency does not seem to be in the interest of finding a new replacement tenant as efficient as possible.

  Oh really? As your next line seems to say otherwise

  Yes, the property is listed on certain websites and a "For Lease" signboard has been put in front of the property.

  What more do you want them to do? its listed on I'm guessing either domain or realestate website and you have a lease sign up the front.

  This is basically all an agent does these days for anything, selling a house, renting a house or shop etc.

  I'm sorry OP, but they have done what I would expect them to do.

  they request a hefty increase of the monthly rent for the replacement tenant which seem to be unreasonable for the location and explains the low interest of potential tenants

  Well this could be the main issue. Are you sure the rent increase is unreasonable for the area?

  I guess you can approach the agent and ask why the new rent is so high.

  Final note: Considering to get a lawyer involved with no predictable outcome.

  Its not going to hurt, they will review the contract and give you options on ways forward.

  Does this in anyway fall under the Australian Consumer Law which protects against unfair practices?

  is it in the contract? While contracts can be ruled unfair, I'm pretty sure everything you have listed is in the standard 101 contract for leasing a commercial building.

  Any input/advises/personal experiences of leaving a commercial lease agreement prior to its expiry is highly appreciated.

  You I mean your 'friend', might need to explore the options of subleasing the building. If allowed in your contract.

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  cassidy02 on 10/02/2018 - 21:33

  I'm a commercial property manager in Vic, happy to speak to you/your friend direct on the phone on Monday if you like, PM me (will be quicker to answer any questions).