NEWS

Commercial Property: Getting Advice Before Signing an Agreement to Lease

Getting Advice Before Signing

By Stephanie Reddy


Katie wanted to start a new business. She needed premises to run her new business from. A local real estate agent said he had the ideal place for her but she would need to sign an Agreement to Lease quickly to secure the premises.

The Lease was for a four year term. Katie was uncertain about taking on a four year term because she was unsure whether the business would succeed. A friend reassured her by saying he was always on the lookout for larger premises and could take over the Lease from her if necessary. Katie couldn’t see anything in the Agreement to Lease which would prevent this. The agent told her the Agreement to Lease was in standard form. As the Agreement to Lease was short and looked straight forward, Katie didn’t worry about taking it to her lawyer to review as she was under time pressure to sign.

The Landlord provided a rent free period to fit out the premises. Before the end of the period the Landlord sent through a Deed of Lease to sign. This document was longer and contained more obligations than the Agreement to Lease. The Landlord suggested that by signing the Agreement to Lease Katie had agreed to enter into the Deed of Lease in this form. Katie decided to talk to her lawyer.

Her lawyer advised her that the Landlord was correct. When Katie signed the Agreement to Lease this was an agreement to enter into a Deed of Lease at a later date. Her lawyer explained it was preferable before signing an Agreement to Lease to look through the terms of the standard Deed of Lease as well. This way she would understand all her obligations and could ask her lawyer any questions. Katie didn’t understand the “full picture” or the extent of her obligations because she had only looked at the Agreement to Lease.

The Deed of Lease stated she could not assign the lease without the Landlord’s permission. Katie wanted to know if this prevented her friend from taking over the Lease if the business failed.

Her lawyer explained that under the clauses of the Lease, Katie could not assign the Lease without the Landlord’s consent. She needed to apply to the Landlord for consent and her Landlord might wish to see evidence of the ability of her friend to pay the rent. Her lawyer also explained that the Landlord had to act reasonably on deciding whether to grant consent to assign the Lease. Katie might have chosen not to enter into the Agreement to Lease if she’d known this and had understood the full extent of her obligations.

 

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