Should I Register my Commercial Lease?
A question which is often asked when parties enter into a commercial lease is whether the lease should be registered on title to the property. This article summarises the advantages and disadvantages associated with registration of leases.
Do I need to register my commercial lease?
In Queensland, registering your commercial lease is not mandatory, meaning that failing to register your lease does not invalidate it. However, there are certain circumstances where registering your lease is recommended.
By registering your lease, it creates an ‘indefeasible title,’ meaning that once your interest is registered it cannot be defeated in the event of a sale or transfer of property to another entity.
Leases that are less than 3 years automatically have protections through legislation. However, if the lease exceeds 3 years, these protections do not apply. Therefor to ensure an individual’s interests under a lease are protected it is recommended to register your lease.
Advantages of Commercial Lease Registration
The principal benefit of registration of a commercial lease is, it provides the tenant “indefeasible” possession to the premises pursuant to law and in accordance with the terms of the lease. What this means is that the tenant’s interest in the premises will be protected from events which may affect title to the property, such as if the landlord sells the property to another entity, a mortgagee seeks to obtain possession and sell the property, or any other entity asserts an interest in the land, amongst other potential issues.
Registration is therefore particularly important for tenants where premises are leased for their good location, size or some other strategic reason, and the tenant wants to protect their possession of the premises from any future events affecting the landlord’s interests and over which they have little control.
Another good reason for registration of commercial leases is that it creates an official record of all leases affecting a particular property. An official record is often useful for landlords of shopping centres, ‘strip-shops’ and other commercial precincts where there are several leases granted for different areas on the same property. It assists with a landlord’s intended sale of the property, and when landlords seek to obtain a loan or refinance a loan, where the property is to be used as security.
Disadvantages of Lease Registration
The only disadvantage to the registration of the lease is that there are some upfront costs tenant. Those costs include:
- The Titles Office registration fee for the Lease;
- Mortgagee consent fees (if applicable to the particular property); and
- Where the leased premises are only a part of the land, a registered surveyor will need to prepare a survey plan for lease purposes to be annexed to the lease prior to registration.
Commercial Lease Registration Cost
The above costs can range between a total of $169.00 (being the registration fee for the lease), to approximately $2,000.00 (if there is a mortgagee, a survey plan needs to be prepared, and the lease is thereafter registered).
Whilst it is acknowledged that these upfront fees may be relatively significant to a small business which is in the process of setting up, we suggest that the advantages of lease registration may outweigh the costs associated therewith, particularly if the lease is for an extended period of time (such as over 3 years).
What is the process for registering a commercial lease in QLD?
When you “register a lease” it refers to lodging the lease documents with the Queensland Titles Registry for official registration. Once registered, the lease is recorded on the Freehold Land Register as an indefeasible title for the premises.
Registering a lease ensures that the tenant’s interest are recorded on the property’s title, guaranteeing protection and priority over unregistered interests.
Here’s a step-by-step guide:
1. Prepare the Lease Documents
There are two approved forms that will need to be completed for registration. Form 7 – Lease and a Form 20 which contains the conditions of the lease and will be attached to the back of Form 7.
If the lease pertains to part of a lot, it is important to include a sketch plan prepared in accordance with the Registrar of Titles Directions for the Preparation of Plans.
2. Obtain Necessary Consents
Obtaining consent from the mortgagee is recommended to protect the tenant’s interests. For example, a previous registered mortgage is not automatically bound by the subsequent registered lease unless the mortgagee gives their consent.
If the mortgagee approves the lease registration, it ensures that the lease is enforceable in relation to the registered mortgage. This consent and registration are important for tenants during the tenancy.
3. Lodge the Lease for Registration
Once Form 7 and Form 20 have been completed and the necessary consents have been obtained, all the necessary documents will be submitted to Titles Queensland and the applicable registration fees at the time of lodgement must be paid.
What happens if I don’t register my lease?
If a lease is over three years it is particularly important to understand the potential consequences if someone decides not to register their lease. If a lease is not registered there is no official record of it on the register.
If a prospective buyer does searches on the property that is for sale, they will not be aware that there is a lease. As a result, they may not be bound by the lease, leaving tenants in jeopardy of the buyer’s freedom to decide what they want to do with their property.
However, if the lease is registered, when a prospective buyer does searches of the property, they will see a registered interest and therefore the tenants will be able to enforce their registered rights against the new landlord.
Do I need to consult a commercial lawyer?
Registering your commercial lease is important and although there are some upfront costs, the protection it offers for your rights outweighs these expenses.
Failing to register the lease can lead to legal complications, including the potential loss of the tenant’s right to occupy the premises.
Consulting a lawyer is important when dealing with commercial leases to ensure that your documents have been prepared and lodged correctly. It will also help avoid delays that are caused by errors during the registration process.
Consulting a lawyer to review your lease agreement guarantees it includes the necessary provisions for registration, protects your rights, and clarifies who covers the registration costs.
Contact a Commercial Lawyer
Our experienced Commercial lawyers are here to help you with your lease transactions and registrations.
Please contact us on (07) 5532 3199 or submit an online enquiry.
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