The “Offer To Lease / Lease” Process

Picture: Adelaide building

Many of our clients who lease commercial property are surprised to be given, not a lease, but an “offer to lease” of some kind, by the landlord or its agent. One of the most popular standard-form versions of such a document in use today in Western Australia is called a “contract for lease” which can be confusing. Regardless of the exact name, these documents are formulated as an offer from the prospective tenant to the landlord, offering to take up a lease of the premises on certain key terms that are set out in the offer: the rent; outgoings; term (length of time); option terms; and so forth.

Why a two-step process? By framing the first agreement as an offer coming from the tenant, the landlord is free to reject the offer and lease the premises to someone else. This may seem odd, because the document has been composed by the landlord, but it gives the landlord the opportunity to choose someone else as the tenant, or even not go ahead with leasing the premises at all.  If the landlord accepts the offer, the tenant is then required to sign a formal lease document.

The offer document is usually short, perhaps 6 to 10 pages. A commercial lease can be between 35 and 100 pages in length. Commercial leases in the larger shopping centres are at the larger end of the spectrum, as they deal with many extra issues such as use of common areas and loading bays, and marketing for the centre as a whole, and may also be accompanied by a number of other documents, such as a fit-out guide, which in some cases can be as large as a lease itself.

In Australia, government regulations at State/Territory level require “shop leases” for premises used for retail purposes to be accompanied by a standard disclosure statement, and the lease must comply with certain requirements mandated by legislation. In Western Australia, the disclosure statement is called a “tenant Guide” and is 12 pages long. An example of a restriction placed on shop leases in that State by legislation is that a landlord may not pass on the cost of drawing up a shop lease to the tenant.

The offer document is important, because it locks the prospective tenant into an agreed position certain key things. It is important for the tenant that those things are suitable, from the outset. Although the lease is a different document, and the tenant is free to re-negotiate the terms of the lease, the tenant may face a penalty for not proceeding with the lease after having signed the offer. For example, it may lose some part of any monies paid in advance. If there is any suspicion that the offer document may includes unfavourable things, the tenant would be wise to obtain professional advice on the document from a lawyer.

If you require advice on a commercial or industrial leasing documents in Western Australia or Victoria, please contact us.

[The author of this blog post, James Irving, is a commercial lawyer practising in Perth and Melbourne and the principal of Irving Law. This post is not intended as legal advice for any particular person. Photo credit: public domain image courtesy of Wikimedia Commons originally published in Stow, J P, South Australia: Its History, Productions and Natural Resources (1883), Government Printer, Adelaide, Australia, uploaded by the University of California.]