Property Prompts – Guarantees and Outgoings

GUARANTEEING THE OBLIGATIONS OF A TENANT UNDER A LEASE:

1. A Landlord will typically require the directors and shareholders of a corporate tenant to guarantee the obligations of the tenant.  Consider offering a bank guarantee/bank bond or a cash bond rather than giving personal guarantees.
2. Where required to give personal guarantees, however,

• seek to limit the duration of the guarantee
• provide for a release of the guarantor on an assignment

• provide for a release of the guarantor if the guarantor ceases to be a director or shareholder. In the case of a trust as a shareholder, ensure release of the trustees upon retirement, especially trustees who had an interest in the trust assets at the time the guarantee was given so that their guarantees were not limited by the standard limitation of liability clause but personal and unlimited

OUTGOINGS

1. Regardless of whether the rent you are paying is a gross rent (inclusive of outgoings) or a net rent (where you pay outgoings separately from and in addition to rent), it is important to specify the outgoings which are included in the gross rent or which will be charged to you.
2. Consider the following:

• how old are the premises?
• are you taking on responsibility for any deferred maintenance, or maintenance the benefit of which you will not enjoy during the term of your tenancy?
• try and get an indication of the rate per square metre, and compare to similar premises
• exclude the obligation to pay outgoings the benefits of which you do not reap, e.g. costs of maintenance of lifts where your tenancy is on the ground floor
• consider if you would prefer to arrange insurance yourself, and what an appropriate excess should be
• if the Landlord is arranging insurance, consider when the Landlord can elect not to insure
• where you are the main or only tenant, consider agreeing with the Landlord to undertake most of the maintenance and upkeep: in that way, you avoid “double-handling” and could control the costs yourself
• check how much the Landlord is allowed to charge by way of management fees, and if you can limit management fees to a percentage of outgoings
• generally, exclude responsibility for fair wear and tear, structural maintenance and the making good of defects (latent, workmanship, materials)
• Is there a sinking fund and what happens to that at the end of the lease?
• Does the Landlord have to provide a reconciliation of outgoings at the end of each outgoings year?
• If the Landlord forgot to charge outgoings, how far back can the Landlord recover?
• You should try and limit annual increases in outgoings to a specified percentage
• Does the Landlord have a right to require you to purchase services and utilities from it? If so, ensure that you have the ability to procure your own – to keep competition alive
• If a unit title, what body corporate levies are you responsible for: always check to ensure that the Landlord has not just passed on to you the invoice for all levies (which could include long-term maintenance or contingency funds

Next time:  MAINTENANCE AND MAKE GOOD OBLIGATIONS