Understanding a Commercial Lease

Understanding a Commercial Lease

When renting a property from which you intend to run a business, it is important for both Landlords and Tenants to understand the relationship they are entering into and the rights and obligations that they each have. The document that governs this relationship is usually a Commercial Lease.

So, what is a Commercial Lease?

A lease is a legally binding contract that gives you certain rights to a property for a set term. A commercial lease is used when leasing property that is used primarily for a business.

You should never sign a lease without understanding all of its terms and conditions. If you don’t understand what you are agreeing to you could experience serious financial and legal problems.

It’s important to properly investigate the property and lease document before you sign. It is a good idea to ask your lawyer to explain each clause of the lease to you. Your lawyer can give you legal advice, draft new clauses and help you negotiate the terms and conditions to suit you.

Important issues to consider when entering into a lease

A commercial lease will usually contain terms dealing with items such as:

Rent: How much is the rent and when is it due? The amount of the rent will usually be calculated based on the area of the premises. This may not always be as simple as it sounds. For example, if the shape of the property is irregular or the area includes a lift, more than one floor, outdoor area or interior walls.

Rent Increases: Rent will usually increase annually during the term of the lease, with increases determined by a fixed percentage, market based values or tied to the CPI. It is common for CPI or fixed reviews to occur during the term of a lease and for a market review to occur at the expiry of the initial term and each option period.

Security Deposit: The landlord will usually ask for some form of security from the tenant in case the tenant defaults on their obligations (eg. not paying rent). The security is usually for an amount equal to 3-6months’ rent and is by way of bank guarantee or security deposit. If the tenant is a company then personal guarantees from the company’s directors may also be required. The lease should also specify the terms regarding its return.

Term of the lease: The lease should set out the length of the lease and any options to renew the lease and any terms relating to the renewal. A landlord will generally want a longer initial lease term (typically 3, 5 or 10 years) whereas the tenant is likely to want a shorter period (1-3 years).

Option to Renew: An option allows the tenant to continue leasing the property on similar terms at the end of the period of the lease for a further defined period and rent (subject to any review). An option gives the landlord potential greater security of income and the tenant the ability to make longer term plans for their business.

Knowing the procedure for exercising the option, especially when the option can be exercised, is critically important

Improvements: A lease should address what improvements or modifications can be made to the property, who will pay for the improvements and whether the tenant is responsible for returning the property to its original condition at the end of the lease.

Description of the property: The lease should clearly describe all of the property being leased, including bathrooms, common areas, kitchen area and parking spots. A plan of the property should also be included.

Signage: Any restrictions on putting up signs, say that are visible from the street, will be included in the lease. Also, check local zoning regulations to determine what other limitations may apply.

Use of the property: Most leases will include a clause defining what the tenant can do on the property (eg. What type of business). A tenant should ask for a broad usage clause just in case the business expands into other activities. Ask your local council if your business can operate in your desired location. Also consider the council’s development plans for the area.

Outgoings: The lease will set out who is responsible for costs like utilities, property rates & taxes, insurance, and repairs.

Insurance: You should contact your insurance company and discuss the clauses referring to insurance so you fully understand what is covered by the lease.

Exclusivity clause: This is an important clause for retail businesses renting space in a commercial complex. An exclusivity clause will prevent a landlord from renting space to a competitor.

Assignment and subletting: A tenant should maintain the right to assign the lease or sublet the space to another tenant. Usually the tenant is still ultimately responsible for paying the rent if the business fails or relocates, but with an assignment or sublet clause in place, the business can find someone else to cover the rent.

Maintenance & Repair: The lease should clearly set out who is responsible for maintaining or repairing the property and the fixtures and fittings during the term of the lease.

Make Good: A tenant should carefully review the make good obligations in the lease.  Often these can be onerous and involve considerable expense on the tenant having to reinstate the premises to their original condition when the lease commenced.

Termination: The circumstances under which the lease will be terminated should be set out in detail in the lease.

Costs: The landlord may want the tenant to pay the costs of preparing the lease, this should be clearly set out in the lease.

Retail lease or general commercial lease?

The Retail Leases Act 1994 has specific legislation relating to retail leases. This legislation is designed to promote fair leasing arrangements, improve communication and provide access to low cost dispute resolution for the retail industry.

For a new retail lease the landlord is legally required to give the tenant:

  • a written lease with matters agreed to and signed off by both parties.
  • a disclosure statement.
  • the NSW Retail Tenants Guide, which gives notice of some of the tenants’ rights and obligations and some commercial matters that the tenant should be aware of.

The disclosure statement outlines important information about the lease, it must be in the prescribed form and contain a statement notifying the tenant that independent legal advice should be obtained. It would also normally include details about:

  • the term of the lease
  • whether there are options for further terms
  • the occupancy costs for leasing the premises (including rent and any outgoings)
  • specific information for shopping centre leases
  • tenant’s fit out requirements
  • if there are any relocation or demolition clauses

Conclusion

Although many of the terms of a commercial lease are fairly standard it is important that you fully understand your rights and obligations, especially the provisions which relate to retail leasing.

It is a good idea to ask your lawyer to explain what each clause in the lease means and to get their assistance in negotiating the terms and conditions that suit you.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or via our contact form here.

Does your privacy policy comply with the privacy laws?

Does your privacy policy comply with the privacy laws?

Privacy laws in Australia are governed by the Privacy Act 1988 (Cth) (the ‘Act’) and the Australian Privacy Principles which affect the handling of personal information.

The principles were introduced in 2014 to bring Australia’s privacy laws (first introduced in 2001) in line with advancing technology trends and to provide more transparency around the capture and use of personal information.

The principles make it difficult for businesses to collect information about consumers without their knowledge and prescribes how businesses handle, use and store personal information and engage in direct marketing.

These principles have been further strengthened by the Privacy Amendment (Notifiable Data Breaches) Act 2017 (Cth) which imposes mandatory reporting requirements on entities subject to existing obligations under the Act, for an ‘eligible data breach’.

If your business is affected, you may need to update your privacy policies and your procedures and systems to comply with the law.

Which businesses are affected by the privacy laws?

The Act applies to Australian Government agencies, businesses with an annual turnover of $3 million or greater, credit reporting bodies, and smaller entities ‘trading in personal information’.

What does ‘trading in personal information’ mean?

Personal information is information that identifies, or could reasonably identify, an individual. This includes names, addresses, dates of birth and bank account details.

Trading in personal information includes collecting or providing personal information to a third party for a benefit, service or advantage. If you collect personal information and then provide it to a business to manage your direct marketing, you may be trading in personal information.

What are the key obligations?

Businesses subject to the Act must:

  • Ensure they have a privacy policy that addresses specific topics;
  • Have procedures and systems in place to ensure they comply with the Act and the privacy principles;
  • Understand what an ‘eligible data breach’ is and implement policies to deal with such breaches.

Entities affected by the Act may face significant fines for serious or repeated breaches.

How do I ensure my business complies?

Businesses affected by the Act should review and identify how they deal with personal information. The following elements need to be addressed:

Privacy Notice

When you collect personal information, inform individuals of your organisation’s name, contact details, the purpose of collection and to whom it will be disclosed.

Privacy Policy

Your privacy policy must address the required topics. These include:

  • What personal information you collect.
  • How you collect the personal information.
  • The purposes for which you use and disclose it.
  • If you provide personal information to parties overseas you need to disclose that and, if practicable, specify the countries where those parties are located.
  • Setting out how you secure and store personal information.

Systems

Establish a system to ensure that:

  • Staff who handle personal information comply with the new privacy laws.
  • Individuals can access their personal information and correct out of date or incorrect information.
  • You have a process to deal with complaints about your compliance with the laws.
  • Enables recipients of direct marketing material to unsubscribe.

Understanding eligible data breaches

An eligible data breach happens if:

  • There is unauthorised access to, unauthorised disclosure of, or loss of, personal information held by an entity; and
  • The access, disclosure or loss is likely to result in serious harm to any of the individuals to whom the information relates.

An entity must give notification of an eligible data breach:

  • If it has reasonable grounds to believe that a breach has occurred; or
  • If information has been lost and unauthorised access or disclosure of that information is likely to occur;

and, in either case,

  • The breach would likely result in serious harm to the individuals to whom the information relates.

Dealing with eligible data breaches

If a breach occurs, an entity must notify any affected individual and the Office of the Australian Information Commissioner (OAIC).

If an entity suspects a breach has occurred, it must investigate the circumstances of the possible breach within 30 days of becoming aware of it, to determine whether it is an eligible data breach.

Notification must include:

  • The entity’s identity;
  • Details of the data breach – i.e. how the breach occurred;
  • The information that is the subject of the breach;
  • The recommended actions that individuals should take in response to the breach.

Notification is not required if an entity is able to quickly remedy a data breach so that it is unlikely to result in serious harm.

Entities that fail to carry out the investigation and notification processes prescribed by the reforms will breach their obligations under the Act and may face civil penalties.

Conclusion

Business entities that handle personal information must understand and comply with privacy laws. Staff should be trained, and policies implemented on how to collect, store and manage personal information. Policies should identify systemic problems when collecting and handling information and set out appropriate solutions.

Staying one step ahead of your privacy obligations, and minimising the potential for data breaches to occur, is essential to safeguard against fines and loss of reputation.

If you need more information or if you need assistance or advice on how to proceed please call us on (02) 9963 9800 or via our contact form, here.

Avoiding Redundancy Traps

Avoiding Redundancy Traps

Employers can easily fall into dispute with their employees by failing to properly handle redundancies. There is often uncertainty surrounding redundancy, in terms of handling it within the law, as well as cost.

Redundancy commonly occurs when a business is sold and a new owner offers jobs to the vendor’s existing workforce. Some employees decline the offer of employment by the new owner. In this context, an issue can arise as to whether or not redundancy payments need to be made to an employee who rejects an offer of employment by the new owner.

Notice and Severance distinguished

Notice and severance payments should not be confused. The period of notice provides the employee with a chance to seek other employment while a severance payment is intended as compensation for the loss of future entitlements to long service leave and accrued sick leave.

Redundancy

Let’s examine what redundancy means. The best way to define redundancy is that the employer no longer wishes the duties the employee has been performing to be undertaken by anyone. Termination of the employee on this ground has therefore nothing to do with poor performance or misconduct. Essentially the work or role is no longer required to be performed by any employee. Redundancy can also happen when an employer becomes insolvent or bankrupt, or following a re-structure, in order to increase the competitiveness or profitability of a business.

The employer must meet any requirements under a relevant award or enterprise agreement regarding redundancy. This includes discussions with the employee about the prospect of redundancy in view of operational changes or restructuring.

Employers need to be aware that a redundancy which does not meet the above criteria may expose them to an unfair dismissal claim. It should also be appreciated that a redundancy does not remove the need for notice or payment in lieu of notice.

Some employers fall into the trap of going through a ‘redundancy’ and then immediately afterwards advertising the same position. From an employer’s perspective it is prudent to assume the former employee will check your advertised positions.

It is not uncommon for an employer to seek to portray what may in fact be, a wrongful termination of an employee, as a “redundancy”.

The employer needs to ensure that, on examination of the facts, whilst the employee may have no legal claim to a severance payment, there is no basis for a common law claim.

What is a ‘genuine redundancy’?

If an employee has been made redundant and that redundancy is a “genuine redundancy” as defined by the Act, then the employer will be able to defend a claim for unfair dismissal.

Under the Act, it is a “genuine redundancy” if:

  • the person’s employer no longer requires the person’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and
  • the employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment regarding the redundancy; and
  • it is not reasonable for the employer to redeploy the person in the employer’s enterprise or an associated entity of the employer’s enterprise.

It is important that the employer who is making an employee redundant not only complies with the consultation provisions of any applicable award or enterprise agreement, but also makes enquiries to make sure that there is not a suitable alternative position available within the employer’s business or any other “associated entity” of the employer.

When should a redundancy payment be made?

When an employee is made redundant then usually a redundancy payment will be required by the employer and this is often called severance pay.

However, the employee is not entitled to redundancy pay under the Fair Work Act if the employee:

  • resigns;
  • is terminated other than due to redundancy, e.g. misconduct or performance issues;
  • has been employed for less than 12 months;
  • is employed in a small business with less than 15 employees;
  • was employed for a fixed term and that term has ended;
  • is a casual employee.

The amount of any redundancy payment is calculated by reference to the employee’s years of service. For example if the employee has worked for a period greater than one year but less than two the redundancy period payable would be 4 weeks. If the term was between 9 to 10 years the period would be 16 weeks.

However, an employer may not be required to pay the redundancy for the full length of service if the employee did not have any redundancy entitlements with the employer in question, prior to 1 January 2010. In those circumstances the period from which redundancy payments are calculated is 1 January 2010 rather than the full length of service.

In conclusion – take care

It is easy to fall into one of these employment law traps and employers should be satisfied as to the circumstances that constitute a redundancy, carefully review payments to be made and comply with the Act’s requirements in relation to a “genuine redundancy”.

Regardless if you are an employer or employee, if you feel you need assistance call us on (02) 9963 9800 or connect with us via our contact form.

Personal Liability for Company Directors

Personal Liability for Company Directors

A company is an association incorporated under the Corporations Act 2001 (Cth) (the ‘Act’). The effect of incorporation gives the company a separate entity, distinct from its directors and shareholders. It can enter into contracts, sue and be sued in its own right.

The Australian Investment and Securities Commission (ASIC) is the Government body authorised to administer the Act and may investigate and impose civil and criminal penalties for breaches under the Act.

As the company is a separate legal entity, generally its directors are not personally liable for the company’s actions. However, increasingly, ASIC and creditors of companies that have limited assets are pursuing recovery personally from company directors who may have breached their duties under the Act.

In certain circumstances, directors can be held personally liable for losses of the company. Some of these circumstances include:

  • Insolvent Trading;
  • Personal Guarantees;
  • Breaching directors’ duties;
  • Taxation debts and superannuation contributions; and
  • Phoenix activity.

Insolvent Trading

The Act prohibits a company from trading whilst it is insolvent.

Because a company is a separate legal entity, directors and shareholders are generally protected from being personally liable for the company’s debts. This protection may be abused when directors allow companies to continue trading and incurring debt despite warnings of potential insolvency.

To circumvent unscrupulous or reckless trading, the Act provides that directors who allow a company to trade whilst insolvent will be in breach of both civil and criminal provisions of the Act and may be liable for its debts.

There are certain defences available and directors may not be liable if:

  • they had reasonable grounds to expect the company was solvent at the time the debt was incurred and would remain solvent after that time; or
  • at the time the debt was incurred they did not participate in management due to illness or some other good reason; or
  • they took all reasonable steps to prevent the company from incurring the debt.

Arguably, the threat of being personally liable for insolvent trading could cause directors who are facing transient cashflow issues to succumb to the early appointment of an administrator, despite good prospects of survival. To find an appropriate balance between encouraging enterprise and protecting the community, additional protections for directors have been introduced.

The safe harbour provisions are available to directors who take positive steps that are reasonably likely to result in a better outcome for the company than administration or liquidation. Directors will not be liable for the debts of a company incurred whilst it is insolvent if:

  • after suspecting the company is in threat of insolvency, the directors begin to develop a course of action that could reasonably be likely to lead to a better outcome for the company than immediate administration or liquidation; and
  • the debts were incurred directly or indirectly in connection with this course of action.

Factors that may establish that a course of action would likely lead to a better outcome include:

  • whether the director properly informed himself / herself of the company’s financial position;
  • whether the director prepared a plan to improve the financial viability of the company such as a restructure;
  • whether the director retained a suitably qualified person to advise on the restructuring;
  • the taking of appropriate steps to prevent any misconduct within the company that could adversely affect its ability to pay its debts.

Directors generally cannot rely on the safe harbour provisions in circumstances where the company has failed to meet its obligations for employee entitlements as they fall due, failed to maintain accurate financial accounts and records, or failed to substantially comply with its reporting and filing requirements under Australian taxation laws.

Personal Guarantees

A personal guarantee is a separate agreement between a director and a creditor where the director of a company agrees to pay a debt of a company in the event that the company does not make payment.

This could include a director providing security over personal assets such as a home.

Breaching directors’ duties

Under the Act, directors have certain duties that must be complied with.

Where a breach of any of these duties is committed and the company suffers a loss, directors can be personally liable.

In these circumstances, civil and criminal penalties under the Act will apply, including paying compensation to the company.

Taxation debts and superannuation contributions

Directors are personally responsible for companies complying with Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) obligations.

Where these obligations are not met by a company, a director can become personally liable for non-compliance and be penalised.

Phoenix Activity

This activity occurs where the directors of a company place it into administration or liquidation to avoid payment of creditors but continue the business under a new company name.

Not only can it result in civil and criminal penalties for directors, it can also result in a term of imprisonment.

Conclusion

Company directors hold a position of power and trust. The risk of personal liability is real but manageable and should not deter you from pursuing business and employment opportunities.

The best ways to meet the obligations of being a director are to become familiar with your duties and to understand the legal obligations and the situations which could give rise to personal liability, to be involved in the affairs and operations of the company and to obtain professional advice and assistance when needed.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or via our contact form here.

Will my Facebook post affect my employment?

Will my Facebook post affect my employment?

Can an employer intervene in an employees use of social media outside work?

A recent decision by the Fair Work Commission has shed some light on this question showing that having a detailed workplace policy can provide better protection for your company from damaging posts made by employees. Further, the decision has shown that employees need to think carefully before they comment on social media channels online.

The recent decision of Waters v Mt Arthur Coal Pty Limited concerned a dispute between an employee, Mr Waters, and his employer, the Mt Arthur open cut coal mine in the Hunter Valley. In the lead up to Christmas 2017, the coal mine was considering whether it would operate on Christmas and Boxing Day due to safety concerns arising from low staff numbers. It was announced two days before Christmas that operations would continue over these days.

Following this decision, an Industrial Safety and Health Representative issued a direction to suspend mining operation over the Christmas period due to the reduced emergency evacuation capacity. Mt Arthur received this direction but decided not to comply with it, and considered the safety risk not to be a real concern.

Mr Waters was a health and safety representative at the mine, and after receiving the safety direction he posted a Facebook status saying ‘Xmas & Boxing day shifts are off for good.’ Mr Waters was not aware this status was incorrect, and assumed the mine would comply with the safety direction. When Mr Waters confirmed with other staff members that the status was incorrect, he deleted it.

Mt Arthur terminated Mr Waters’ employment for being in contravention of a range of their workplace policies including the ‘distribution of material that is likely to cause annoyance, inconvenience or needless anxiety to your colleagues’.

The Fair Work Commission found that the Facebook post was a valid reason for dismissal. They found that the post had a relevant connection to Mr Waters’ employment, was used to communicate operational matters with other employees and was likely to damage Mt Arthur’s interests in operating the mine. The post was ultimately found to be incompatible with Mr Waters’ obligations to comply with workplace policies.

The case provides a timely reminder for employees to be extremely careful with what they post on social media, especially if it relates to their work. It also highlights how important comprehensive workplace policies are for employers. However, employers must be conscious of identifying a connection between the social media post and employment before intervening with an employee’s use of social media use outside work hours.

If you would like to speak with one of our solicitors regarding social media and the workplace, please contact us on 9963 9800 or via our contact form.

Alternative Dispute Resolution: Mediation and Settlement Conferences

Alternative Dispute Resolution: Mediation and Settlement Conferences

Lawyers are often stereotyped as being interested in prolonging an expensive court action, however more often the opposite is true, due to the availability of alternate dispute resolution avenues such as mediation.

Lawyers know that court cases are expensive and that clients are fearful that legal costs could escalate to an intolerable level. Lawyers interested in preserving long standing relationships with their clients will often recommend alternative dispute resolution options. Mediation is one of those options.

There are various types of mediation

  1. Pre-litigation informed settlement, or a round table conference
  2. Informed settlement conference after the court proceedings have commenced without a mediator
  3. Courted ordered mediation with a mediator

What exactly is mediation?

Mediation allows parties to remain in control of their own disputes and outcome while facilitating parties to tell their side of the story to the other party and the mediator. It is conducted on a ‘without prejudice basis’ which means that whatever is said during the mediation is confidential and cannot be used in court against you. It rules out the uncertainty and risk of court litigation and allows the parties to make certain compromises to achieve a commercial outcome.   

Mediation is one form of alternative dispute resolution. Others include Early Neutral Evaluation, Expert Determination and Arbitration.

In essence, mediation is an informal conflict resolution process brought before an independent, neutral third party. Mediation gives the parties the opportunity to discuss their issues, clear up misunderstandings, and find areas of agreement in a way that would never be possible in a court case.

Mediation is often voluntary. Typically the mediator has no authority to make a binding decision unless both parties agree to give the mediator that power.  This is dealt with in advance of the mediation commencing. Mediators are accredited under the National Mediator Accreditation System.

When parties should consider mediation

In practical terms mediation is likely to be quicker and more cost-effective than the more formal processes of arbitration or litigation (in court). Mediation should be considered as early as possible after a dispute has arisen. It is particularly appropriate where a dispute involves complex issues and/or multiple parties.

In addition, mediation can be implemented prior to, or in conjunction with, other forms of dispute resolution such as arbitration or court proceedings.

In circumstances where privacy and confidentiality are important, mediation enables parties to preserve these rights without public disclosure. This often leads to more satisfactory outcomes for both parties.

Advantages of mediation

There are many advantages. In summary these can be described as:

You get to decide

The responsibility and authority for coming to an agreement remain with the people who have the conflict. The dispute is viewed as a problem to be solved. The mediator does not make the decisions, and you do not need to “take your chances” in the courtroom.

In doing this however, you need to understand your legal rights so that you can make decisions that are in your own best interests. It is very important to seek legal advice from a competent litigation lawyer so that you do not agree to an offer that is much less than you are entitled to.

The focus is on needs and interests

Mediation examines the underlying causes of the problem and looks at what solutions best suit your unique needs and satisfy your interests.

For a continuing relationship

Colleagues, business partners, and family members have to continue to deal with each other co-operatively. Going to court can divide people and increase hostility. Mediation looks to the future. It helps end the problem, not the relationship.

Mediation deals with feelings

Each person is encouraged to tell their own story in their own way. Discussing both legal and personal issues can help you develop a new understanding of yourself and the other person. You are encouraged to see things from the other person’s perspective.

Higher satisfaction

Participants in mediation report higher satisfaction rates than people who go to court. Because of their active involvement, they have a higher commitment to upholding the settlement than people who have a judge decide for them. Mediation ends in agreement about 80% of the time and has high rates of compliance.

Informality

Apart from court ordered mediation in a large court, for complex litigation in which parties would follow a set structure such as submitting position paper and a mediation bundle to the mediator ahead of the mediation, informal settlement conferences are less intimidating process than going to court. Since there are no strict rules of procedure, this flexibility allows the people involved to find the best path to agreement.  Although it is normal for any dispute resolution to be taxing emotionally, mediation is a process that is much less confronting and is conducted in a much more comfortable environment than litigation

Faster than going to court

Years may pass before a case comes to trial, while a mediated agreement may be obtained in a couple of hours or in sessions over a few weeks.

Lower cost

The court process is expensive and costs can exceed the benefits. It may be more important to apply that money to solving the problem, repairing damages, or paying someone back. Mediation services are available at low cost for some types of cases. If you can’t agree, other legal options are still possible. Even a partial settlement can lessen later litigation fees.

Privacy

Unlike most court cases, which are matters of public record, most mediations are confidential.

Where mediation is not the solution

With mediation, a resolution is not guaranteed. There is the potential that parties may invest time and money in trying to resolve a dispute out of court and still end up having to go to court. Ultimately, it is a call that should be made in consultation with an experienced lawyer.

Mediation should not be a solution in circumstances where it is not appropriate. For example, where a court remedy is necessary such as an injunction or seeking specific urgent court orders.

It must also be remembered that the mediator has no power to impose a binding decision on the parties. Therefore, even after the mediation the matter may be unresolved and you may still need to go to court.

Fundamentally, mediation rarely produces a satisfactory resolution unless all parties to a dispute are committed to a resolution.

Navigating the court system can be a financially and emotionally costly and time-consuming process. Mediation is an alternative. It is suitable for people who are willing to communicate with the other party and attempt to better understand and settle their dispute with the help of a trained third party.

To find out more call us on (02) 9963 9800 or contact us here.