Look before you lease: 3 tips on landlord disclosure statements

In early 2018, Darwin recorded the highest vacancy rate, at an astonishing 21.6 percent, across all Australian office space markets three years in a row. Commercial landlords cannot afford to get caught out over any mistakes that could have been easily avoided by obtaining legal advice prior to entering into a new lease with a tenant.

Many landlords are unaware that in the Northern Territory, the Business Tenancies (Fair Dealings) Act (Act) applies to most commercial leases and imposes fines for landlords who fail to comply with certain aspects of the Act and allows a tenant, in certain circumstances, to terminate a lease within 6 months without penalty if the landlord fails to comply with their disclosure obligations.

Timing

It is important to get the timing of the landlord’s disclosure statement right because failing to do so, could attract a fine. It is mandatory under the Act for a landlord to provide a tenant with a landlord’s disclosure statement at least 7 days before the lease is entered into by the tenant. The 7 day timeframe can be waived, if the tenant obtains a solicitor’s certificate from an independent solicitor.

Content

When drafting the disclosure statement, landlord’s need to be mindful of the content within the disclosure statement.

In general terms, a landlord’s disclosure statement is a short summary of the lease itself and should outline all outgoings payable by the tenant. The outgoings are the regular financial responsibilities of the tenant.

Under the Act, the tenant is not responsible to pay any outgoings that are not disclosed in the landlord’s disclosure statement. In the long term, this simple mistake could prove to be costly and quite detrimental to the landlord, which is why it is crucial to ensure the landlord’s disclosure statement is done right.

The Act also provides that tenants are not responsible to pay any lease preparation costs, unless the amount of reasonable charges, or method of calculation of those charges are disclosed in the landlord’s disclosure statement and the invoice is provided to the tenant. This means that many landlords may miss out on having their legal costs reimbursed to them by the tenant if they do not first disclose this obligation in the landlord’s disclosure statement.

Tenants ability to terminate

As mentioned above, tenants may have the ability to terminate a lease without penalty in certain circumstances. These circumstances are where the landlord fails to provide a landlord’s disclosure statement or the landlord provides a landlord’s disclosure statement that is incomplete or contains materially false or misleading information within 6 months of the lease being entered into.

Why engage a solicitor

Aside from the fact that generally the tenant is liable for the landlord’s legal costs (when the disclosure statement is drafted right), engaging a solicitor to draft disclosure statements can minimise a landlord’s risks when a tenant is entering into a lease. Property solicitors are aware of the strict timeframes around landlord’s disclosure statements and the importance of ensuring the correct content is drafted into the disclosure statement.

Disclaimer

The advice provided in this article is of a general nature only and should not be substituted for obtaining your own independent legal advice. If you have any further queries, please contact Ward Keller on (08) 8946 2999 or wardkeller@wardkeller.com.au for further advice.