24 Aug Should a Commercial Lease be Registered?
It is common in practice for the Tenant to bear the costs of and incidental to the registration of the Lease. This can include the costs of having a Premises surveyed and plans prepared, lodgement fees and requisitions. This can all be a very costly process.
The question that often confronts a Tenant is: do the risks associated with not registering the Lease justify the initial costs of registration?
So what are the risks?
First we should look at the basic rule regarding registered and unregistered interests. Section 184(2)(a) of the Land Title Act 1994 (the ‘Act’) provides:
“the registered proprietor of a lot will not be affected by the actual or constructive notice of an unregistered interest affecting the lot.”
There are exceptions to this rule as we will see below but, disregarding the exceptions, the effect is that, if the Landlord should decide to sell the Premises at any time during the Lease, a buyer of the property is not be obliged to honour any unregistered Lease. It is worthwhile to note that this rule applies even if the buyer has actual notice of your Lease.
There are exceptions to this rule. One such exception, perhaps the most commonly occurring exception, is provided for in Section 185(1)(b) Act:
“A registered proprietor…does not obtain the benefit of Section 184…for the interest of a Lessee under a short Lease.”
A short lease is a lease for a term of three (3) years or less. Therefore, your interest under a short Lease will be protected (in part) even if it is not registered. The buyer of the Premises will be forced to honour your interest in the Premises as if your Lease were registered, but any options for a further period need not be honoured.
The Act expressly provides that, even if the initial term of the Lease is three years or less, any options to extend the lease and any rights to purchase the premises which are contained in the Lease will not receive the benefit of Section 185(1)(b).
If you want to ensure that your Lease options are protected then you must register your Lease regardless of the initial term of the Lease.
There are other, less commonly occurring, exceptions provided for in the Act, however, what is clear is that if you want to secure your tenancy for any period beyond three (3) years, registration of your Lease is essential.
If an option to purchase the leased property is included in the lease then registration is essential regardless of the term of the lease.
The process of registration requires strict compliance with the titles office requirements.
You should always obtain advice and assistance from your lawyer when entering into a commercial Lease.