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Protecting Your Commercial Property Rights

Commercial property law is an area of law that governs the construction, maintenance, and ongoing use of commercial property. The property rights that attach to owning a commercial property are different to the property rights that attach to a residential property. There are different types and classifications associated with commercial property and commercial property law governs what you and your tenants can use your property for. In order to protect your commercial property rights, you must first understand your unique commercial property and the rights associated with its use. You must then consider the property rights that require protection and how you maintain those property rights when allowing third parties to use your commercial property.


Step 1: Investigate and understand your rights

The first step in protecting your commercial property rights is to thoroughly investigate the rights that attach to your commercial property.


Commercial property law covers rights and obligations in relation to the land, the construction and maintenance of the buildings, the use of the commercial property and the relationship between the occupants of the property. Therefore, it is useful to think of the property rights that attach to your commercial property in terms of the areas they relate to.


First you have property rights in relation to the physical land. In this category you would investigate the boundary by engaging a surveyor to conduct a survey to ensure that both your assets and the assets of your neighbours are contained within the boundaries of the correct lot. Your property rights relate to the area within the survey and should be protected. If either your assets or those of your neighbours encroach onto the other parties lot this is called an encroachment and you should engage a commercial property lawyer and specialist consultants to provide advice on correcting the encroachment.


You would then review the properties title to ascertain if there are any easements burdening or benefiting the land. Easements outline the property rights and obligations of the owners of commercial property. In order to protect your rights, you need to review the easement terms to ensure that they are being complied with. If the rights and obligations contained in the easement document are not being complied with you should consult a commercial property lawyer for advice on how to enforce your property rights.


One of the key risks for owners of commercial property relates to environmental contamination. If your property is subject to a contamination event the costs associated with remediation can be expensive and the presence of contamination can restrict future use. If the contamination is extensive enough it can result in your commercial property being placed on the Environmental Management and Contaminated Land Register. Land that is placed on the Register has restricted use and can be the subject of costly environmental management plans. To protect yourself and your commercial property from issues associated with environmental contamination we recommend that you engage an environmental consultant to undertake a baseline contamination report. This report can then be used as a baseline and will enable you to pass the risk associated with contamination on to your future tenants. An appropriately drafted lease will ensure that future tenants are responsible for preventing contamination and remediating any contamination that occurs.


The next area is to consider the property rights given by the local Council and the State in relation to the permitted use of the land and buildings. By undertaking searches and enquiries with the relevant Council and government agencies you will be able to ensure that any use of the building complies with the relevant zoning, that the building itself has received the appropriate approval, obtain a certificate of classification and you will be able to confirm whether any development application has been finalised. Partially completed development applications and building approvals that have not been finalised can negatively impact your property rights and should be investigated, rectified and finalised. If your searches show issues, you should seek the advice of a planning and environment lawyer, property lawyer and building certifier.


The next area to investigate is the building itself to ensure that all legislative requirements are complied with. In relation to the building, you have rights and obligations under various pieces of legislation for areas such as the building standards, heritage requirements, fire compliance, environmental management, asbestos and workplace health and safety.


By investigating the above items, you will understand the current property rights associated with the ongoing use of your commercial land and buildings. This information will help you determine what property rights need to be protected and enable you to protect these in any future leasing or licensing of your commercial property. Any use of the building, the land or alterations to the building that fall outside of existing approvals will require planning advice.


Step 2: Consider the rights you wish to protect and ensure they are documented

Once you have obtained a thorough understanding of the existing formal rights associated with your property the next thing to consider is any informal rights. You should consider matters such as access, the passage of services and any encroachments. When reviewing these items you should consider the impact on the use of the land, the use of the building and any occupants if the right did not exist. If during your analysis you discover an informal right that is essential to the use of the land and/or building, you should seek legal advice about what you can do to formally document and protect that right.


In addition to the above you should consider what additional property rights are important to you as the owner of commercial property. You may wish to protect certain aspects of the building’s character, control carparking allocations or determine signage standards. You can then seek commercial property law advice on the appropriate way to document and protect these requirements.


Step 3: Protecting Your Property Rights while Allowing Other People to Use Your Commercial Property – Unfair Contract Terms

In commercial property law we use various forms of documentation to protect your property rights including leases, licences, easements, covenants, building rules and guidelines. The appropriate documentation will depend on who you want to bind, what rights you wish to protect and how long you hope to protect them for. In this section we will explore some fundamental considerations to protect your commercial property rights when preparing leases. Please note the information below is general information only and does not encompass all issues that should be considered.


Unfair Contract Terms

The Unfair Contract Terms Regime applies to standard form contract which includes the types of documents used to protect commercial property rights. The Australian Consumer Law should be considered prior to drafting any property documentation, particularly leases. Where you are dealing with a small business (fewer than 100 employees or annual turnover less than $10 million) or individual you will need to ensure that your leases and associated property documents do not contain unfair contract terms.


An unfair contract term is a term:


  1. Which creates a substantial imbalance in the contractual rights and responsibilities between the involved parties;
  2. That is not reasonably necessary to safeguard the genuine interests of the party benefiting from it; and
  3. Where enforcing or depending on the provision would result in harm (monetary or other) to 1 of the parties.


The Australian Consumer Law sets out examples of terms that might be considered unfair, being:


  1. A term that permits, or has the effect of permitting:
    • 1 party (but not another party) to avoid or limit performance of the contract;
    • 1 party (but not another party) to terminate the contract;
    • 1 party (but not another party) to renew or not renew the contract;
    • 1 party to vary the upfront price payable under the contract without the right of another party to terminate the contract;
    • 1 party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract;
    • 1 party unilaterally to determine whether the contract has been breached or to interpret its meaning;
    • 1 party (but not another party) to vary the terms of the contract;
    • 1 party to assign the contract to the detriment of another party without that other party’s consent.


  1. A term that penalises, or has the effect of penalising, 1 party (but not another party) for a breach or termination of the contract;


  1. A term that limits, or has the effect of limiting:
    • 1 party’s vicarious liability for its agents;
    • 1 party’s right to sue another party; or
    • The evidence 1 party can adduce in proceedings relating to the contract

  2. A term that imposes, or has the effect of imposing, the evidential burden on 1 party in proceedings relating to the contract.


The Court has wide powers in relation to unfair contract terms which include among other things issuing significant financial penalties, voiding all or part of the contract and the power to prevent you using the contract with other parties. Given these consequences, one of the best ways to protect your property rights is to review your property documentation and remove or amend any unfair contract terms. The remainder of this article will look at unfair contract terms in the context of leases as these are the most common way commercial property owners document the third-party use of their property.


Determine what is Commercially Necessary

The first step is to consider what is commercially necessary and the items that must be included in the document. In this regard it is important that you carefully consider and document the rationale behind the property rights you wish to protect. You should be transparent with any prospective tenant to ensure that they understand the rights of each party and the reason for the protection of those rights. You should have your tenant acknowledge that they have considered the impact of you exercising those property rights and agree to their inclusion. Where the protection of your property right significantly impacts the tenant, you should seek to minimise the impact and otherwise look to balance/offset the rights of the tenant in other clauses of the document. Where clauses are negotiated, negotiations should be genuine and undertaken in good faith, the process documented, and evidence of the negotiations should be kept.


In addition, you should remove from your leases clauses that are not used and those that are irrelevant to how you operate your commercial property. You should then amend relevant clauses to ensure the practical application of the clause is fair. Once each clause has been individually reviewed the entire agreement should be read and considered with a view to ensuring that the agreement as a whole is not unfair. Given the nuances in this area it is prudent to engage a commercial property lawyer to guide you through this review process.


Introduce Reasonableness

Many commercial property owners are used to lease documents that enable them to exercise their property rights in their “absolute discretion” and being able to have full autonomy over tenants when it comes to matters requiring landlord’s consent such as permitted use, works and assignment. Moving forward these types of provisions will create issues for commercial property owners under both the Unfair Contract Regime and the updated Property Law Act. In order to comply with your strict legislative requirements, it is important that you incorporate an element reasonableness and timeliness when making your decisions and/or exercising your discretions. A way to mitigate the risks associated with these clauses is to agree upfront with your tenant and document any requirements/conditions you may have when it comes to changes to permitted use, works to the premises or assignment.


Consider Sharing Responsibilities – Control and Indemnities

Historically it has been common practice to have third parties who use your land provide wide and all-encompassing indemnities. A tenant would take on all liability in respect of loss or damage and indemnify a landlord for any number of matters. Moving forward this approach will not be acceptable and will be deemed to be unfair. To protect your commercial property rights and ensure your lease remains enforceable, you will now need to consider the use of the property, the various actions that could result in loss, damage or a claim together who has control over the causes of the loss, damage or claim and allocate risk accordingly. Any indemnity provision will need to reflect the control of the parties and you will not be able to make a tenant responsible for matters outside of their control such as the negligent actions of you or your employees. Indemnity provisions are complex clauses that require careful consideration and drafting, they should be tailored to each circumstance and appropriately distribute the risk between the parties.


Provision of Information

Unfairness extends beyond clauses to the practical application of those clauses. On the face of it a clause may not seem unfair however if in application a tenant cannot comply with the clause then the Court is likely to find that the clause is unfair. On this basis in addition to the considerations above you should consider whether you have any information in your possession that will assist the tenant in complying with their obligations under the lease and if so, provide it to them. For example, if you require your tenant to comply with your insurance requirements or to not undertake an action that puts you in breach of your insurance policy then provide the tenant with your insurance terms and conditions. If you require them to comply with a community management statement, provide the statement. If you require them to comply with building rules, then give them a copy of the rules.


Record keeping and compliance

To protect your commercial property rights during the term of the lease, you should implement a robust documentation system and get in the habit of recording any interactions you have with your tenants. Where you are negotiating or approving a request of your tenant, you should clearly articulate in writing any reasons and justifications for your decisions. In addition, you should ensure that you and your managing agents are aware of and comply with any notice requirements under legislation and meet the associated timeframes.


Step 4: Review Your Rights, Operations and Documentation Regularly

Commercial property law, consumer protection and the interrelation of these areas is always changes and evolving. To ensure that your property rights remain protected you should regularly review your property documentation, your commercial practices and keep informed of legislative changes.