Why you should choose a commercial lease over a CTA

Why should you choose a Commercial Lease over a Tenancy Agreement?

Did you know there are multiple ways to go about leasing a commercial property? Each with its pros and cons depending on whether you are the tenant or the Landlord. Figuring out which is right for you is just one of the reasons why it’s important to get legal advice before entering into a leasing agreement.

So, let’s talk about two of the most common types of agreements.

There is what we would consider your standard Commercial Lease (which are anything but standard), and a Commercial Tenancy Agreements (CTA).

Commercial Leases and CTA’s are two of the most common forms of lease agreements which we see when the rental agreement does not fall into the category of Retail Shop Lease (Retail Shop leases operate under their own set of rules known as the Retail Shop Leases Act, which applies to particular premises and types of businesses). We will talk about Retail Leases in our next article.
So, what is the difference between a Commercial Lease and a CTA?

What is a Commercial Lease?

We say standard Commercial Lease, for leases which are drafted in a form which can be registered on title for a premise which is being leased, and whilst there are common or standard clauses which we would expect to see in each commercial lease, it is often the drafting of the clause which differ lease to lease as well as additional special conditions which are often added. So really, there is not much which is standard about them!

Essentially, the standard clauses of a lease should cover the responsibilities and warranties of both the tenant and landlord in detail as well as giving details for the care and maintenance of the premise, insurance requirements, in what condition the property is to be left on expiry of the term and so on.

The two most important differing factors between a Commercial Lease and a CTA are:
a) Commercial leases are generally far more detailed leaving little room for ambiguity; and
b) A Commercial Lease can be registered on the title of the premises being leased so the tenant has a registered interest over the premises (which is important for tenants and in some circumstances is a legal requirement).

Having the lease registered on title means there is an extra layer of security, protecting the tenant in circumstances such as ownership in the property changing hands. If the lease is not registered, the protections for renewals may not be honored by the buyer when the property is sold. This can also help with the stability of the tenant’s business (making the agreement more attractive for the tenant) and if the Lease is properly drafted, this will not cost the Landlord anything.

What is a Commercial Tenancy Agreement?

As CTA’s are short term, they generally do not include detailed provisions regarding fit outs, insurance, repairs and maintenance, make good requirements and many other recommended conditions. In some circumstances, it can provide both parties with flexibility at a lower cost, however, it also leaves a lot of areas open for interpretation, often ending in disputes.

We always recommend a long form Commercial Lease to our clients as we firmly believe an appropriately drafted agreement will be cheaper in the long run and avoid a lot of uncertainty which may end in dispute.

Still unsure? Below is a summary of the difference between Commercial Leases and CTA’s.

Commercial Tenancy Agreement

Commercial Lease

Cost effective No provisions for bond/ security Lack of details regarding specific issues Limited provisions for payment of outgoings Limited make good provisions Unable to be registered on title Suitable for short-term. Cannot be used if the term is more than three (3) years (including options to renew)

Additional expense – usually covered by tenant (with the exception of retail premises) Detailed provisions for bond and guarantors, outlining when they can be called The terms are made to cover specific issues, such as insurances, air conditioning, parking, make good, storage facilities, licensing and more Detailed outgoings, ensuring water, gas, electricity, telephone, etc. are paid Make good provisions Can be registered at the Titles Office. Note that leases for  three (3) years or more must be registered with the Titles Office to offer the tenant protection for any options. If the property is sold with an unregistered lease, the new owner is not obligated to honour the options Suitable for long term occupation

Whether you are looking for more information on CTA’s or Commercial Leases, need a lawyer to prepare a Commercial Lease or simply need advice regarding your lease, at Omnia Legal we have you covered.

Don’t leave your business at risk, book your free consultation now.

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This article provides general information on legal topics for educational purposes only, and should not be considered legal advice or recommendations. While we have taken care to ensure accuracy, Omnia Legal is not responsible for any errors, and makes no guarantees about the accuracy or completeness of the information. Links to third-party websites do not constitute an endorsement, and we are not liable for any damages that may result from using inaccurate or incomplete information. It's always best to seek legal advice for specific situations.