Parties to a commercial lease often rapidly work towards finalising the terms of the lease, having all relevant documents signed and ensuring bank guarantees and insurance are in place – ; so that the tenant can take possession, do any fit out and start paying rent.
It is often an after-thought consideration whether or not the lease should be registered on the property title.
Depending on the intentions of the landlord and tenant and the length of the lease, this is often a step which not should be missed and one which may need to be considered before signing of the Lease.
What if it is only a short-term lease?
In Queensland, short-term leases are provided what is known as ‘indefeasibility’ of title without needing to be registered.
The effect of indefeasibility is discussed further below, but quite simply it means that the tenant’s interest in the lease is protected, including where the landlord sells the property to the another party.
Importantly, to be a short-term lease, the lease must have a total term of 3 years or under including any options to extend. Therefore, a lease which is 3 years with an option to extend for a further 1 year or more is not a short-term lease, and beyond the initial 3 years the tenant is not guaranteed indefeasibility.
You should ALWAYS register a long-term lease
A lease of over 3 years in term (including options) does not have indefeasibility of title unless it is registered. Accordingly, you should always look to register long-term leases.
So what does not having ‘indefeasibility’ of title mean?
Not having indefeasibility of title does not automatically mean that a lease is unenforceable or void. There is still a written agreement in place, and in most cases this should continue to bind the parties as long as the landlord remains landlord of the property (i.e. does not sell or dispose).
However, if you do not have indefeasibility of title for a lease:
- Landlord implications –
The implications for the Landlord are relatively minor. However, registration is usually looked on favourably by banks conducting valuations and potential buyers of an investment property.
- Tenant Implications –
The implications for tenants are much more serious.
- If the Landlord sells the property with an unregistered long-term lease, the Buyer may only be required to honour the existing term of the lease (excluding options). This is a grey area and is assessed based on the circumstances on a case by case basis.
- If the Landlord’s bank/mortgagee takes possession of the property (e.g. if the Landlord defaults in repaying its loan), the bank/mortgagee is not required to recognise the tenant’s right to occupy the property unless the lease is registered and the bank has consented to the lease. This means that a bank could kick a tenant out if they took legal possession from the owner.
How do I register my Lease?
As with all things legal, the process is fairly simple provided the Lease complies with all requirements of the Queensland Titles Registry and the landlord’s mortgagee. For example:
- To be registered, a lease must be in the approved Queensland Titles Registry form (i.e. not a commercial tenancy agreement); and
- It may be required for example that the leased area is identified by a plan that is prepared by a cadastral surveyor (i.e. not just a sketch).
This is why it is important for the parties to consider registration prior to signing of the Lease.
If you require assistance in reviewing, entering into, registering or amending your lease, please contact our team today.