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Archive for the ‘Commercial Law’ Category

What’s to Know About a Commercial Lease?
Friday, December 2nd, 2016

By Les Buchbinder, Director, with the assistance of Giuseppe Graneri, Associate at Bowen Buchbinder Vilensky Lawyers

2 December 2016

When first entering into a lease of commercial premises the task may seem daunting as well as confusing.

A lease is a legally binding contract (carrying significant legal consequences if its terms are breached) which creates certain rights and obligations between a landlord and a tenant in respect of a particular property. A commercial lease is used where the main use of the property is for business purposes.

It is critically important for prospective tenants to be aware of, and to fully understand, all of the important terms and conditions of the proposed lease. Entering into a lease without doing so can lead to significant and potentially fatal financial consequences.

Most, if not all, commercial leases contain several key terms which must be well understood before any prospective tenant finally commits to entering into the lease. These include:

Rent
What is the rent that you will be expected to pay? When will it fall due and payable (i.e. each month or each fortnight)?

Generally rent is calculated based on the area (per square metre) of the premises being leased. Sometimes reaching agreement as to the area that is being leased and for which rent is payable is not a straight forward exercise.

Rent Increase
Equally as important as ascertaining what is the actual rent payable, is understanding when rent increases are due and how they are to be calculated. Rent usually increases annually during the term of the lease determined either by a fixed percentage, market-value or possibly with respect to the Consumer Price Index (CPI). In the event that the lease provides for a market value review (as opposed to fixed increases) a market value review is required to take place at the expiry of the initial term and at expiry of any option to renew the lease.

Security/Bank Guarantees
In some instances, a landlord may ask for some form of security from the tenant or proposed tenant in order to cover a situation where the tenant fails one of the key obligations under the lease, such as failing to pay the rent. Sometimes the security required is a payment equal to 3 or 6 months’ rent and in some instances this is sought to be further guaranteed by some form of a bank guarantee. If such a security is sought in the lease, then the lease should also set out clearly the terms as to when the security payment will be returned back to the tenant. Similarly, if the tenant is a company then it is common for a landlord to require one or more of the company directors to provide a personal guarantee that the company will meet all of its obligations under the lease, including the obligation to pay rent.

Term (Duration)
Another key term of the lease is the duration of the lease itself. The lease document should set out clearly the length of the lease as well as any further options to renew the lease and any particular terms or preconditions that may be required relating to the renewal of the lease. Where a lease provides for one or more options for the tenant to renew the lease, it is essential that the tenant be aware of both when each option must be exercised and how it must be exercised (i.e. what form of written notice is required to validly exercise that option to renew the lease). Failing to exercise each option by the prescribed date and/or in the prescribed manner will (unless otherwise agreed) result in the lease ending and either no further lease being offered to the tenant or a new lease being offered but potentially on less favourable terms. This, of course, can be financially disastrous to a small business.

If you would like to discuss your commercial leasing circumstances please do not hesitate to contact us on 9325 9644.

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Leasing Incentives – the Disincentive is in the Detail!
Thursday, September 29th, 2016

By Les Buchbinder, Director, with the assistance of Giuseppe Graneri, Associate at Bowen Buchbinder Vilensky Lawyers

29 September 2016

A recent survey by  Property Council of Australia found that the Perth office vacancy rate rose from 19.6 percent to 21.8 percent in the six months leading up to July.  This high vacancy rate has resulted in an increase in lease incentives being offered by landlords to prospective new tenants and to existing tenants whose leases are due to expire.

In a significant turn around to the recent past, the commercial rental market today is very tenant friendly and we are seeing (among other things) a resulting drop in effective rents.

Incentives

A lease is a legally binding contract which sets out the respective rights and obligations to both the landlord and the tenant in respect of the use by that tenant of a property owned by the landlord. The terms of a lease are negotiated between the landlord and the prospective new tenant and there are sound reasons why leasing incentives are offered.

Landlord’s reasons to offer incentives

  • Landlords can choose between their premises becoming or remaining vacant or accepting a lower rent or offering other incentives
  • Landlords can achieve a rent that provides some or all of the cash flow to pay for ongoing holding and operating costs (and possibly pay off development costs)
  • Landlords can encourage tenants to take up longer lease terms (the longer the term, the higher the incentive)

Tenant’s reasons to accept incentives

  • Tenants will seek to maximise the benefits that can be obtained when entering into a lease;
  • Tenants may have the choice as to whether to pay a higher rent and receive an incentive or pay a lower rent and receive no incentive
  • Landlords may offer an incentive to fund some or all of the fit-out costs or (in some other way) free up the tenant’s finances to enable the tenant to meet those fit-out costs.

Lease incentives can take one, or a combination, of the following forms:

  1. Rent free period or reduced rent period;
  2. A cash payment to the tenants or other in kind payments;
  3. A free office or other fit-out, whether paid directly by the landlord or by way of reimbursement to the tenant for fit out expenses; and
  4. The landlord assuming the tenant’s liabilities under an existing lease (i.e. lease legacy or lease tail).

So, What’s the Disincentive?

Negotiating the terms of a lease and any incentives to be offered or gained is often an extensive and robust process. At the conclusion of this process it is vitally important that both parties have a very clear common understanding as to the agreed key terms of the lease  and  exactly what incentives have been agreed to by the parties. Failure to achieve this will almost certainly result in misunderstandings, disputes and ultimately expensive protracted litigation.

Settling the wording of a lease is also a critical step in the process of securing a viable long-term tenancy for any property. This includes ensuring that all agreed incentives offered by the landlord are carefully and accurately recorded in the lease document. This is as much for the protection of the landlord as well as the tenant.

In addition, careful consideration must also be given to what other implications of the agreed incentives may exist.  For example:

  • Are there any tax implications?
  • Are there any government approvals that must be first obtained?
  • Has an agreement been reached as to what is to happen to any of the assets from which the tenant has benefited and for which the landlord has paid once the lease comes to an end?

Sometimes, where a tenant accepts certain incentives offered or agreed to by the landlord, the effective rent payable by the tenant is significantly reduced  and the Landlord may wish to keep this information confidential in order to preserve other tenancy arrangements with other tenants and/or to preserve the value of a building’s capital value. Such a confidentiality requirement can be recorded in the lease itself or, alternatively, as a separate Deed.

Whilst there are many incentives on offer to prospective tenants which are very attractive, it is essential that prospective tenants fully explore and understand the incentive being offered, whether it is a real benefit to the tenant’s business and what are all of the implications and obligations in accepting such an incentive. It is also essential to both the landlord and the tenant that the incentive agreement be fully and properly recorded in writing as part of the lease so that both parties have a clear understanding of the nature and full extent of the agreed incentives.

It is strongly recommend that all lease agreements be carefully reviewed by a lawyer before being signed by either the landlord or the tenant to ensure that it appropriately records all of the required terms and conditions including any incentives that may have been agreed to by the parties during the negotiation process.

Should you require any further information or assistance in relation to your leasing arrangements please contact Les Buchbinder or Giuseppe Graneri on 9325 9644.

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Slap on a Caveat!
Tuesday, August 2nd, 2016

By Les Buchbinder, Director, with the assistance of Giuseppe Graneri, Associate at Bowen Buchbinder Vilensky Lawyers

2 August 2016

A reoccurring issue that I deal with relates to people or businesses that are looking to register a caveat against the Certificate of Title (“Title”) to land. A caveat when registered against the Title to the land will generally prevent ownership of the land from being transferred into another person’s or entities name. More often than not, such people are looking to register the caveat against the Title because the registered owner of the property owes them money and they are trying to stop the land  from being sold so as to secure payment of the debt owing to them.

Unfortunately, a caveat cannot be registered against a Title simply because the registered owner of the land owes money to the person or entity seeking to register the caveat or for some other reason that person wishes to prevent the transfer of ownership of the land into the name of a third party.

In order to be entitled at law to register a caveat against the Title of land owned by another person or entity you must have what is referred to as a ‘caveatable interest’ in the land.

So, What Exactly is a Caveat?

As I mentioned above, a caveat is a document registered on a Title to land, that prevents dealings (such as buying, selling or mortgaging the land) with the land. A person who registers a caveat is known as a “caveator”. The caveat itself does not create an interest in the land or give the caveator the power to sell the land. Rather what it does do is to act as a:

  • warning that the caveator has some form of interest in the land; and
  • an  injunction to prevent any dealings in relation to the land.

Importantly, in Western Australia a person who registers a caveat against a Title to land without having a valid a ‘caveatable’  interest in the land  becomes  liable to pay compensation to any person who suffers financial  loss as a consequence of the caveat being registered against the Title to that land. Such compensation may amount in some cases to many thousands of dollars, such as where a sale of land is lost because the caveat is registered against the Title unlawfully.

Therefore, whilst the actual process of registering a caveat against the Title to land is a relatively straight forward one, the consequences of doing so if you do not have a clear caveatable interest in that land can be very significant and sometimes financially fatal.

When do I have a caveatable interest?

There are different kinds of interest in land that will satisfy the requirements of a “caveatable interest’ in the land. The following kinds of interest in land have been accepted by the Courts as caveatable interests:

  • as purchaser under a contract to acquire the land;
  • as grantee of an option to acquire the land;
  • as tenant of the land;
  • as the holder of an equitable mortgage in relation to the land; and
  • as chargee of the land;

A caveatable interest in land can arise in several different ways including by agreement. The latter is very important in commercial transactions because it is possible in many circumstances for parties to a contract to agree to the creation of a caveatable interest in one or more nominated pieces of land to secure a debt thereby providing the creditor or potential creditor with the ability to secure debt against tat land by way of a valid caveat

Is there More Than One Kind of Caveat?

There are different kinds of caveats and so it is important that if you are intending to register a caveat against the Title to land  that you also ensure that the correct kind of  caveat is lodged in the circumstances. There are 3  kinds of caveats that can be registered against the Title to land  in Western Australia. These are caveats that prevent dealings relating to the land:

  1. absolutely (absolute caveat);
  2. until after notice is given to the caveator that the caveat has been registered against the Title to the land (notice caveat); and
  3. unless the caveat registered is expressed to be subject to the claim of the caveator (subject to claim caveat).

Each of these kinds of caveats have different characteristics and benefits depending on the situation at hand. Care needs to be taken in selecting the most approprate caveat for the situation at hand.

Conclusion

Registering a caveat against a Title to land can often provide a swift and cost effective way of securing an existing or anticipated future debt. However, unless there is a valid caveatable interest in the land and  the correct kind of caveat is selected the exercise can quickly turn into a financial disaster. If the validity of the caveat is challenged then the caveator must either withdraw the Caveat voluntarily (thereby losing the security for the debt) or take a potentially significant financial risk in maintaining the caveat registered against the Title to the land and hope that he/she/it is found to have a valid caveatable interest in the land in question.

It is highly recommended that competent legal advice be obtained before proceeding to register or attempt to register a caveat against the Title to land to ensure that a valid caveatable interest exists and that the correct kind of caveat is selected to register against the Title to the land. It is also highly recommended that competent legal advice be obtained before entering into any significant commercial transactions to ensure that either:

  1. you  are aware of, and agree to, the creation of a caveatable interest in a Title to land registered in your name or one of your business entities; or
  2. a valid caveatable  interest is in fact created in Title to land if as a creditor or potential creditor you wish to secure debt against Title to land.

If you would like any further information in relation to this topic please feel free to contact the author or another one of our lawyers to discuss the matter further.

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Landlords – Back to Basics
Tuesday, February 2nd, 2016

By Les Buchbinder, Director, with the assistance of Giuseppe Graneri, Associate at Bowen Buchbinder Vilensky Lawyers 

2 February 2016

The starting point for all Landlords should be ensuring that they have an appropriate and well drafted lease for their commercial premise. It is a crucial step for Landlords as a poor lease or a bad leasing decision can be a costly mistake. The lease is central to the goodwill, value and future sale of a business.  A well drafted lease can avoid or assist the Landlord in resolving disputes that they may have in the future with tenants.

In Western Australia, the Commercial Tenancy (Retail Shops) Agreements Act 1985 regulates many retail shop leases. Landlords should understand their rights and obligations in relation to the lease and what procedures to follow in the event of any disputes.

In October 2015, the commercial leasing vacancy rate in the Perth CBD was 19.6%. This figure was expected to grow in early 2016 as final completions of new developments came onto the market and leasing space that was taken up during the boom, was handed back as businesses have downsized.

At its meeting today, the Reserve Bank of Australia’s Board decided to leave the cash rate unchanged at 2.0 per cent. The reasoning behind the decision was that recent information suggested the global economy is continuing to grow, though at a slightly lower pace than expected. This is the ninth month in a row that Australia’s official interest rate has remained unchanged at a record low 2 per cent.

The ramifications for Landlord’s entering into a bad or hastily drawn lease in this current climate is that they may find that they have an invalid lease or they may experience significant disputes and as well as potential litigation in later years as a result. When interest rates do start to rise in the coming years, we are likely to see a large number of disputes concerning rent reviews.

Legal and commercial advice should therefore be obtained before:

  • making any commitments to lease, take on an assignment or incur any other obligations;
  • signing an offer to lease or any other lease related document;
  • payment/receipt of any deposit or other monies; or
  • occupying the leased premises.

If you are a Landlord looking to lease in this competitive market, you should begin by considering your leasing requirements with the main goal to develop a profitable business. Once you have identified your leasing requirements (i.e. the lease term, annual rent, rent reviews, etc) you must then seek to include as many of these requirements as possible when negotiating the terms of a new lease or the renewal of a lease with the tenant.

For more information or to discuss your commercial leasing objectives and needs, please feel free to contact Les Buchbinder at lbuchbinder@bbvlegal.com.au.

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David vs Goliath – Small Business to Benefit against Unfair Contracts
Friday, December 4th, 2015

By Les Buchbinder, Director, with the assistance of Giuseppe Graneri, Associate at Bowen Buchbinder Vilensky Lawyers

4 December 2015

In light of new laws recently passed, small businesses have more protection against unfair contracts.  Taking effect on 12 November 2016, following a 12 month transition period, the new laws will supplement the existing law on unfair contract terms for consumers.

The new laws apply to standard form contracts between businesses where one of the businesses employs less than 20 people and the contract is worth up to $300,000 in a single year (or $1 million if the contract runs for more than a year).

To fall under the legislation the following must apply:

  • the contract is a standard form contract, meaning (generally) the contract is pre-prepared by one party and provided to the other party on a “take it or leave it”, “one size fits all” basis with no effective opportunity to negotiate its terms;
  • the contract is entered, renewed or varied after commencement of the substantive provisions of the Bill, being 12 months after Royal Assent.  The amendments in the Bill will apply to the contract as renewed or the terms as varied on and from the renewal day or the variation day (as applicable), in relation to conduct that occurs on or after that day; and
  • the contract is a contract for the supply of goods, services, land, financial products or financial services.  In the case of the Australian Consumer Law, a small business contract must be a contract for a supply of goods or services, or a sale or grant of an interest in land.

The Australian Competition and Consumer Commission (ACCC), Australian Securities and Investments Commission and state and territory offices of fair trading will be enforcing the legislation.

As examples, the following contractual terms are likely to be caught by the legislation:

  • enabling one party (but not another) to avoid or limit their obligations under the contract;
  • enabling one party (but not another) to terminate the contract;
  • penalising one party (but not another) for breaching or terminating the contract; and
  • enabling one party (but not another) to vary the terms of the contract.

Small businesses should be aware that it is only the unfair part of a contract that will potentially be struck out, the rest of the contract remains.

If you have a contract that may fall into this category and would like to discuss this further please contact Les Buchbinder at lbuchbinder@bbvlegal.com.au.

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Why You Should Never Think of Insurance Renewal Notices as ‘Routine’
Friday, September 5th, 2014

By Les Buchbinder, Director at Bowen Buchbinder Vilensky Lawyers

5 September 2014

When most of us receive renewal letters from our insurers for our house, car or healthcare, we usually focus on the cost of the renewal and ignore the rest of the document.  But spending just a few minutes checking the details and reflecting on what has happened since the last renewal document can mean all the difference between dealing with life’s inevitable challenges with relative ease, or suffering serious financial hardship.

Omitting to mention changes is different from material non-disclosure.  But how are they different?

Omission

Let’s say you buy an expensive new item of jewelry or furniture. When your contents insurance renewal paperwork arrives, because you made the purchase nearly a year ago and don’t spend much time thinking about new capital items, you forget to list it on the renewal document.

Some weeks later there is a burglary.  Apart from having to deal with repairs and disruption, when you put in your claim for the expensive stolen items, the insurer rejects the claim because they were not nominated on your Policy Schedule.

Maintaining an inventory of all items to be listed on a contents insurance policy may seem a tedious task, but it’s an important one.  Forgetting to mention an item on your Policy is, in insurance speak, an ‘omission.’  Material non-disclosure is rather a different matter.

Material Non-disclosure

Let’s use an example from private medical insurance, when a person forgets to mention the fact that he consulted a medical specialist about a back injury a few years before taking out a policy.  Having not had any back problems for years, perhaps it doesn’t even cross his mind when he completes the paperwork.

Fast forward to a weekday afternoon when some routine activity at work results in the person suddenly and unexpectedly putting his back out.  What at first impression seems to be a minor injury seems a lot more problematic after medical examination – he is told by doctors he may need extensive treatment.

If he subsequently makes an insurance claim, the insurer will request a full medical report, including historical records.  The chances of having the much earlier back injury discovered are high – at which point the insurer could reject his claim on the basis that he failed to disclose significant information that was material to whether or not the insurer would have taken on the risk in the first place.  Or, if the insurer had been willing to take on the risk, it would have been for a substantially higher the premium.

After years of faithfully paying their insurance premiums could you be forgiven the sin of omission?  I’ve seen insurance companies reject claims by loyal clients of many years standing.  Whatever the policy wording, insurers do have the discretion to waive potential defences to claims made under insurance policies and nevertheless pay out the claim.  But I wouldn’t count on it!

Renewal notices should never be seen as a routine chore.  They deserve quality time and proper consideration.  Contrary to popular belief, the two words I never want to hear a client say is ‘if only!’

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The Benefits of a Shareholders Agreement
Friday, August 8th, 2014

By David Vilensky, Director at Bowen Buchbinder Vilensky

8 August 2014

People who join together to form a company should consider entering into a shareholders agreement.  In essence, a shareholders agreement is a de facto partnership agreement and it supplements the constitution of the company.

A shareholders agreement protects the respective rights of each co-owner if their relationship were to turn sour.  The alternative could be a legal deadlock from which there will be no winners.

If your preferred entity is a unit trust, unit holders of a unit trust (the equivalent of shareholders of a company) can similarly enter into a unit holders agreement to supplement the unit trust deed.

A shareholders agreement provides a clear statement of how the co-owners plan to operate the company.  There is no such thing as a ‘standard’ shareholders agreement.  They are tailored to suit the particular business and needs of the participating shareholders and directors.  However, usual provisions in a shareholders agreement include:

  • Contingency plans that will be triggered by defined events, such as death or divorce or a take-over offer from a third party;
  • The terms on which one co-owner can buy out the interest of another, and the basis on which the business will be valued for that purpose;
  • A stipulation of a non-competitive period so that if one co-owner leaves they are unable to approach customers or suppliers or compete in the same market for a certain period;
  • Agreement as to the allotment of further shares;
  • Rights relating to the appoint of directors;
  • Amendments to the company constitution;
  • Agreed procedure for the sale of shares;
  • Signing of cheques drawn on the bank account of the company;
  • The employment by the company of any of the directors of the company;
  • Properly tailored dispute resolution processes;
  • Allocation of roles and duties in the business operated by the company;
  • How the company is to be funded.

Shareholders agreements and unit holders agreements provide a valuable resource in resolving disputes and clearly determining the rights of parties.  These in turn create certainty and stability in business relationships.

If you would like advice or assistance in this area please contact David Vilensky

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Pitfalls of Construction Adjudication
Friday, April 11th, 2014

By Les Buchbinder, Director at Bowen Buchbinder Vilensky Lawyers

11 April 2014

 Disputes are more common in the building and construction area than in most other sectors of the economy.  Poor workmanship, time constraints and demands for payment for extras falling outside of an original contract, are just a few of the typical reasons for disputes.

When the WA Government passed the Construction Contracts Act in 2005, the aim was to enable disputes to be fast-tracked through an Adjudication process, rather than for disputing parties to have to wait to go to Court.

While Adjudication has been a great step forward in many ways, there is one major pitfall: if a claim is made against your organisation, you have only fourteen days to respond.  These are calendar days, not business days, and no concession is made for public holidays.  For example, if you receive a claim on 22nd December, you have until the 5th of January to respond.

The short response period may not always be a problem, at most times of the year, and for simple cases.  But it’s a very different matter in disputes which involve major construction project payments or where there are significant factual or legal complexities involved, and these need to be dealt with  unexpectedly when key staff are on leave.

My advice to companies which may find themselves having to respond to Adjudication claims is threefold:

1. Put in place procedures for making your organisation aware, as soon as practicable, of a claim for Adjudication having been served and for dealing with it swiftly.  This may involve educating staff as to the processes involved and the importance of the timeframes under the Act as well as having contingency plans in place as to how the response is to be dealt with if, for example, critical staff members are absent or there is a risk that a claim for Adjudication may be served just prior to or over a public holiday period or when for some other reason the business may be temporarily closed.

2. Get your documentation/software in order. As a Respondent, it is up to you to supply the Adjudicator with a copy of any relevant documents in support of your response.  Most often this happens by email.  The onus falls on you to make sure that documents are delivered to the Adjudicator in a way that they can be opened and read (compliance with Electronic Transactions Act 2011 (WA).  It seems incredible, but there are situations where Respondents fail simply because the documents they thought they had delivered to the Adjudicator either never arrived, or could not be opened by the Adjudicator.  If you don’t get your documentation and software in order, your side of the story may simply never be heard.

3. Take legal advice  The detail of a claim or response is critical.  The very wide range of contracts used in the construction industry today underlines the importance of looking at each case individually.  The best time to get legal advice is before offering or signing a contract.  The next best time is the moment you suspect there are grounds for a dispute!

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