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How to industry sign banking new york lease agreement
so welcome everybody to this event which we are co-hosting with CBRE tonight's all about commercial and industrial leasing and ever-changing and challenging landscape as the topic says so tonight's what we will hear about is some information from a number of people from CBRE about the state of the commercial and industrial leasing landscape in New South Wales in Australia and then after that we will hear from a couple of buddy Perry people about useful common helpful terms and conditions of leasing agreements in this context and what can happen if things go bad and what you can do about it so before we get to all of that there there is a bit of housekeeping as always we need to get through Who am I I'm Gavin Stewart I head up a commercial dispute statement here at bardia Perry and I'm very proud on behalf of body aperi to be hosting this event tonight we enjoy putting on events like this with our clients and trusted partners and CBRE is one of those and we find a really good way to give us exposure and also to promote our our partners as part of the as part of the event and you'll also see I think some of you picked them up on the way in some packs that we've put together which contains some information that you might find useful the slides from tonight are in there also a bit of literature about the commercial disputes team in the property team here at Bardia Perry some articles that have been issued in and around leasing and also a couple of products which I'll just plug one of which is very new which is a document or a product called the property and development lifecycle which our property team has recently put together which explains all of the services they provide in and around property property from cradle to grave and also building construction disputes booklets so if you didn't pick one one of those packs up on the way in there on the desk outside if you want to pick one out so we should get going so I don't want to interrupt the flow of this evening so I thought I would just introduce everyone now and then let the presenters take over so first up we will hear from Bradley Spears Tristan Gannon and Michael O'Neill from CB re and they well their expertise is as follows so Bradley heads up the research at CB re a team leading research is in that team and he's been doing that for over 20 years in the sector and works with major property owners agencies and analytics houses Tristen Gannon is the senior director in the advisory and transaction services team and Tristen is a tenant representative in the Sydney market and has advised local and global organizations in their real estate matters across Australia the team transacted 306 new leases renewals and disposals across four hundred and thirty three thousand square meters of office space in 2018 and Michael Michael O'Neill is the senior director in the same team the advisory and transaction services team and he leads the Industrial Sales and Leasing practice in Sydney and regional New South Wales specializing in largest site leasing campaigns and with a strong track record in regional locations his team as a leading industrial and logistics property team in New South Wales so after we hear from our CBRE presenters will then hear from Melissa Potter who is partner and head of our property and planning team here at buddy Paree melissa has over 20 years experience acting for landlords and tenants in drafting reviewing and negotiating industrial commercial and retail leases and then also well at the same time Adam coutry who is a senior associate in the team that I lead the commercial disputes team and he has experience across or working across boutique national and mid tier firms and has experience in acting for and against lessees with respect to lease disputes arising in residential commercial and industrial areas so without any further ado I will hand over to our CBRE presenters to kick us off tonight Thank You Gavin and thank you to Melissa and Adam for inviting us to be here with you this evening firstly by way of introduction for those of you who aren't aware Seabury is the world's work just real estate services firm we have over 90,000 employees spread across 400 offices around the world and in 2019 we were ranked 146 on the fortune 500 and our stock is traded on the New York Stock Exchange as David mentioned in terms of presenters today we've got Bradley Spears who heads up our research team across Australia New Zealand I who lead our profits tenet representation team and Mike O'Neill who leads our industrial brokerage team in terms of what we'll be covering Bradley Spears will will start off giving us a house view on the economic and macroeconomic environment which we're in and then touch into the residential office and industrial markets Mike and I will also then give what we're seeing on the ground in both the office and industrial markets but before we get into the data we wanted to share with you a brief video around some of the predictions that Seabury have that may come into fruition over the next decade [Music] [Applause] [Music] [Music] [Music] [Music] [Applause] [Music] so I'm not a hundred percent sold on the cryptocurrency piece but I'm happy to be proved proved wrong on that so you're probably wondering why a real estate services firm is playing a video about what may occur over the next decade and the reason is that when organizations are entering into contracts for real estate whether it's a lease or a contract of sale or some management agreement they're typically long term contracts so they're usually five to ten years or more and so what this video is intended to to spark some thought around is the rate at which the environment of which were operating in changes and at the rate of change is growing at an exponential rate so if we fast for or rewind back to the year 2000 and look at what are the most valuable companies it was dominated by pharmaceutical financial services oil and gas and manufacturing if we then jump to 2018 not only have the values increased dramatically it's completely dominated by tech firms similarly if we look through to the average tenure within the S&P 500 in 1965 S&P firms generally stayed in the in the S&P 500 for 33 years by 1990 that had reduced down to 20 years and by the year 2026 we're anticipating the average tenure will be 14 years so that's due to factors by organizations not adapting as quickly as some of their competitors and new entrants into the markets and becoming redundant so by that logic we anticipate that 50% of the S&P 500 will be replaced within the next decade so with that sort of setting the scene and hopefully positioning your your thought your your thinking process I'll introduce the brains trust or Brad to give seaberries House view on the economy thank you very much it's a pleasure to be here tonight I'm so what I'll do is I always when we're talking about property markets like to set this thing with how we're seeing things in the broader economy and you can't get much more macro than the global economy over the past eight months or at least since the end of last year we've seen the conditions within the global economy really deteriorate as a result growth expectations for 2019 by the World Bank have been revised from down from three point six to two point six which is quite remarkable now the underlying reason for that is indeed the trade war between the US and China which is really getting more aggressive as each day passes and it's showing no signs of abating anytime soon and how that slowdown is manifesting is it's a lack of confidence or lack of business confidence confidence to invest and also in the manufacturing sector the JPMorgan Global PMI has actually moved into recessionary conditions and that hasn't occurred since 2012 and manufacturing is essentially it's the backbone of output so when that is not firing the whole global economy slows it's a bit of a similar story in Australia we've revised down growth forecasts from 2.8 percent from the end of last year down to 1.7 percent and it might actually even be lower in 2019 we've already seen two interest rate cuts and there's every possibility that we'll see two further rate cuts over the next six months so again similar to the global condition it really is a slowdown and for New South Wales it's coming off some pretty good years we've had very low levels of unemployment and investment in residential commercial sectors has been quite positive so the wind is definitely moderating and to 2019 is going to be our lower growth year one thing Australian politicians especially and also the media they love to crow about this endless economic expansion in Australia well it's not really true if you look at it on a per capita basis since 1991 we've actually had three recessions the first one was around the komm crush the second one was the GFC and the third one were actually right in the middle of it for the past three quarters on a per capita basis we've actually seen GDP real GDP contract one of the reasons and the main reason is the residential sector the slowdown in residential construction but on top of that we've also got the retail sector which has been languishing for quite a period of time over the past ten years there hasn't been many periods where again if you're looking at on a real real spending basis on a per capita basis you know we've been along well below that long-term average of about two percent so given the consumption accounts for about sixty percent of the economy when consumption is down the whole economy isn't firing as it as it should so as I mentioned before you know retail and residential they're really the weak links in the economy at the moment but I think the residential sector things can we can start to look up a little bit more positively and the reason for that is threefold first of all the Morison government was re-elected and essentially what that has done is put paid to any changes in negative gearing legislation that the labor public party was proposing the second one is we've had two interest rate cuts and there's a potential for to further interest rate cuts but the third factor and this is probably the most important one APRA has really loosened its criteria in terms of its lending criteria that banks need to employ in the residential sector so what that has done it's given households the capacity to borrow more and what that's doing is its we're seeing stabilization in house prices and also oxygen clearance rates are improving now what this chart here indicates it's a residential momentum indicator that we've built there's basically five factors going into that we're looking at prices we're looking at transfers dwelling approvals unit approvals and also construction starts now the main take out that we can see for the Sydney market although it's still declining that rate of decline has actually leveled out and we're anticipating that it's going to start to improve in the back half of the year first it will be in terms of pricing and then we'll see the construction pipeline in terms of approvals start to pick up again later in the year more recently over recent time you know there has been a high level of construction in Sydney and Melbourne in particular now in Sydney that's been focused around those middle ring suburbs Syd Parramatta Road and Bayside and although also the CBD has seen a high high volumes of units apply now this is in fact a response to the lack of supply that we had in the post GFC period for about six years we saw supply at about half the level of the preceding almost two decades so what that meant is that there was a shortage of supplies supply and that's why price has accelerated at such a high rate but as we can see now the supply pipeline has been turned back up we've been delivering stock and that's going to continue even though it's starting to taper away already it's going to continue until about the mid point in 2020 although tapering given the recent level of approvals data which is probably about 30 to 35 percent down from its peak we're going to need to see that recover otherwise we're going to get a state get to a state post 2020 where there becomes a bit of a supply-demand imbalance supply over the next few years is largely focused on Parramatta we've seen a lot of supply and we're going to continue to see supply so if you you know you if you're more cautious then you know you'd be a little bit worried that there is going to be an oversupply scenario in Parramatta along with that supply residential supply we've also got a lot of office supply coming on in Parramatta over the near term medium-term outlook period so that market is quite active and there's a lot of cranes and activity now as I mentioned to you before you know this supply is in residential supply is tapering away and that's going to continue to at least a midpoint of 2020 based on the approvals and starts data that we've seen however if we don't start to see supply again start to pick up in 2020 when it we're going to get to this situation again where the supply-demand imbalance is skewed towards a lack of supply and we'll start to see solid price growth again in 2021 so what I'd be looking for over the next six months is stabilization in the in the level of approvals building approvals and then actually some some growth towards Q fuel q4 and into q1 next year so I'll switch gears now and look at the office sector what I like to do is look at momentum indicators first of all I'll look at white-collar employment and then another one that we look at is company company profits which is really a good leading indicator of what companies are going to do in terms of expansion plans and this first one essentially what we've got is white color employment ups of the most recent release which was May and we've taken the quarterly value we've analysed it we've taken them by by annual value analyzed it and then the annual value so what it effectively means if it's pointing up white color employment is gaining momentum if it's pointing down white color employment is losing momentum the one that stands out is Victoria as well as having very very high rates of white-collar employment growth it's also accelerating still now part of the reason there is that the you know Victorian population is growing at about 2.3 percent per year and that's well above the Australian average of one and a half percent if we look at Sydney has actually been a bit of a deceleration in white color employment growth and this was actually evident in the take-up of industrial space sorry office space over the past 12 months net absorption across the six major markets has totaled just 15,000 square metres which is very very low and if you take co-working out of that equation it's basically zero so demand has definitely slackened off and so something will expect to persist going through the rest of 2019 starting to recover at some stage in 2020 now the other barometer I mentioned is is company profits in it and again this is a good indicator because profitable companies are going to continue to expand the main ones here are professional service and financial and insurance they're the key occupiers in the Sydney market and profitability within those two sectors has been declining in the finance and banking and insurance sector you've also got the double whammy of that's been effectively being dragged across the coals in the banking Royal Commission over the past 18 months so demand in that sector has really has really started to taper away so what I'd like to do now is turn to Tristan he'll give you some of the I guess some of the more micro view in terms of the office markets so the pendulum in the Sydney CBD has really shifted from what was a very landlord favorable market in turn so in what was a very tenant favorable market into what is now a very landlord favorable market and we look at what the factors or that have led to that are we believe it's really four fold the first was what we call the Barangaroo effect so when Barangaroo was announced there was essentially 300,000 square meters of office supply that was coming online all at about the same time so all of the major developers in the CBD put on the brakes on any new development and there's essentially a six year lag unti the next or that new supply comes online so the first new building will be 60 Martin Place which is which is due for completion later this year the second factor has been the performance of the residential markets so residential across Australia has performed very well but particularly in Sydney so we've seen a lot of older B grade buildings being converted from offices into apartments the third factor has been the new metro lines so the government compulsorily acquired about 3% of the CBD to demolish buildings and build new subway stations that that those buildings will come back but again it's about a six year lag between when they were taken out of the market and when they come back and the fourth factor has been the rise of co-working which will touch on a little bit later and also tech firms both co-workers and tech firms have been growing exponentially in Sydney and you know the likes of Amazon Google Facebook Salesforce they're all taking large tranches of space so these four factors converged at roughly the same time and then what we've seen is supply and demand get out of equilibrium so on this graph I generally look at the dark green line as demand the light green line is supply and then the pink line is vacancy so you see in 2015 was the last last piece of Barangaroo was delivered and then ever since then there's been very little supply and in some years Oh 2017 and 18 negative supply in the Sydney CBD so those factors have forced the vacancy rate down so we're now at a almost a record at three point nine percent which is pretty much in uncharted territory it's similar to where we were preached if see when we're looking to the future so T bit of a summary of New South Wales now the the GDP growth is at 1.7 percent and our population is about just over 8 million the size of the market is about 5 million square metres average rents are about $1,200 a meter and incentives up around 18 percent when we forecast out to 2025 which is when we think the market will be back in a more balanced position GDP growth will be up around 2.7 percent the population would have grown to just over 9 million people the market size grown to 5.6 million rents jumped by about $200 a meter and incentives up by about 10 percent in terms of what's next in in the growth of Sydney and Sydney's let is constrained by water on three sides so developing within the CBD proper is very very challenging and it requires amalgamation of sites which is which is difficult and so what we're anticipating is that there'll be a migration south so you may have seen some press recently over the central to Everly corridor that the New South Wales government is working on and hoping to create a tech precinct around central railway station this is a illustrative image of what could occur between Central Station and North Eveline but this will be the next big development tranche in in Sydney similarly there's been a lot of investment into infrastructure across New South Wales but particularly in Sydney the the blue lines here show the Metro line of metro network which is currently under construction and the hatch lines show what the government has just committed to and so the really key piece is that in from next year the government will start constructing the second Metro line which will connect Parramatta with Martin Place and commuters will be able to get between the two within 19 minutes so we believe that once that infrastructure is in place it will become much more viable for large occupiers to have a small head office in the CBD and a hub or a back office in the likes of Parramatta there's also been some press this week about Barangaroo Central and there's been a big question mark over what's going to happen with Barangaroo Central and a dispute over the sightlines that was resolved on Monday and so there's going to be a lot more clarity on on the final transfer of the brain guru development and we anticipate that that will be completed around 2025 Bradley mentioned co-working and I'm sure everyone has heard of we work in the others this is not what we don't believe this to be afarid we think co-working is here to stay when we look at other major markets around the world the coworkers are very well established and we work for instance is the largest occupier of commercial office space in New York so that's a market that's traditionally been dominated by the likes of Bank of America and Goldman Sachs and other financial services firms so as that today we work less is more space than any of them this image here is intended to show that firstly how established the the we working the co-working phenomenon is across Asia but also that in Australia we have a lot of players across Asia it's really four or five players in each region so we think there's going to be quite a lot of M&A activity and consolidation of the major co-working players in in Sydney interestingly that about 60% of demand or take-up in the first half of 2009 was from coworkers and that was largely dominated by co-workers taking space in both Sydney and Melbourne that's a that's a very large tranche of space that co-workers are committing to ahead of traditional users of space so when we look at what is the effect of co-working on the Sydney office market we our analysis shows that about 16% of all coworkers are currently vacant so that equates to just over 25,000 square metres of space which represents about half a percent of the CBD so if the vacancy rate as recorded by the Property Council is at three point nine percent if we add in that extra half a percent of hidden vacancy within the co-workers it's actually at about four and a half percent so as a tenant advisor that's good news the higher the vacancy the better but it is just showing that the the coworkers are having a fairly material impact on on the state of the office market back to you looking at the industrial sector now always like to start with a very positive slide we're actually in a recession again in the industrial sector I think though the conditions in the economy and how it's translating into property markets there's a little bit of a difference there and Michael can probably elaborate as to where demand is coming from from a property perspective but just looking at the higher level macroeconomic data as I mentioned before it's you know the industrial economy is in a recession and it's actually quite a deep recession and it's driven by the slowdown in residential construction now this Chuck also illustrates that there was recessionary periods in 2015 2016 that was when the mining construction boon was coming off it's coming off its highs if you compare those the depth of those downturns to what we're seeing right at the moment it just gives you an indication about how important the residential construction industry is to the Australian economy and how large it is so unfortunately that's going to continue to be in you know below the line for this year and probably well into next year it's marginally being offset by wholesale transport and warehousing and we expect that to continue going forward as we start to see a higher penetration from online retail like other commercial sectors the industrial sector we are seeing asset prices getting very what we'd call probably toppy at the moment we've seen prices grow almost a hundred percent since since 2012 and what typically happens there is obviously obviously investors being priced out of the market because we're seeing yields in Sydney in particular super prime yields have come down to four point seven five percent and that's basically on par with what you get with a CBD office building and that's a prime CBD office building so if you're a developer I mean if you're if you're an investor in the industrial space and you can no longer get those high returns the best way to do it is to go and develop your own real estate so what that has done is seen an increased demand particularly in land out in in Western Sydney so what we've seen here in this chart illustrates it on the right-hand side the pink bar it indicates land values and over the past three years industrial land values in western Sydney have grown by about a hundred and ten percent and the reason for this is because asset pricing has been getting high and people are going out there to develop their own stock put that into comparison the rental growth achieved and that those are the green bars on the right hand side it's only been ten percent over the past three years so if we keep going with this trend there's there's actually going to be a mismatch between land values and obviously the rents that you can achieve to get these developments off the ground so that's something to look forward to in the inner city location the story has been quite different we've seen a lot of red rental growth continue of the past three years rents have grown by about 20 percent by comparison and now the reason for that that strong rental growth is that there is a limited amount of in the inner locations and you've got tenants still demanding that and obviously pushing rents up by comparison and comparing it to the Western Western Sydney land values have not increased as much over the past few years and the reason there is because of conditions in the residential sector now inner city industrial locations they have the added benefit that you can actually potentially convert some of that land into residential land use so ultimately what happens when residential becomes less desirable and you start to see house prices going backwards as we're seeing now you also see the value of inner city industrial land going growth growth starting to taper off as we've seen recently whereas growth is continuing in the Western Sydney area so I'd like to hand over to to Mike thanks very much Gavin melissa for having you suited up tonight echoing a lot of what Brad said IND I'm affectionately known as what's called a Shetty but basically in the last three to five years and particularly in the last two years there has been a great deal of change in industrial basically land rates as brad has alluded to have gone up dramatically rents have gone up not so dramatically yields have tightened but what is positive is that despite some of the market conditionings tapering the land availability in Sydney is still quite tight and so we're seeing justifications for some real changes in the market some of the things that we're seeing is automation we're seeing robotics there's the talk of drones and something that you'd need to be an industrial to get excited about but things like multi-level warehousing which is something that's been done globally it's commonplace and in Southeast Asia and parts of America and Europe and basically they appear to be like office blocks or big car parking areas where but with very high roofs and we're on the brink now in Sydney where we're I guess we're not like Melbourne we don't have a lot of flat land to the west and to the north and so if we are expecting to see more change and then from a super prime yields point of view I must admit we've been thinking that yields can't get any tighter but with the amount of offshore interest that we continue to have and with the success of industrial in the last few years the market is is very tight in in terms of rents really what we've seen over the last five to six years as users have become occupiers have become more sophisticated they've you know the the typical warehouses that you might have seen down in South Sydney where they're very low clearance tough access that congestion has only got worse as residential has encroached and so groups started to move further west looking for newer more modern hire facilities and and have been prepared to pay higher rents for that and then more recently we've seen supply chain analytics becoming a really important part of what we do our supply chain director Christine who couldn't make it here this evening she's it really is a science really assessing where an occupier should locate in terms of industrial it's as Christine puts it it's a good deal and a bad location is a bad deal and basically users have now assessed that rather than you know rental costs form only 5% of a total occupies cost whether we're as transports more like 50 percent and so really critical that you've got the right facility in the right location and when you've found that right location that's when they start to look in really investing in those buildings Bradley did a superb job of covering why we've we've seen some of the the growth that we have seen in land values and it's really that's true that the the land had the land rate has sort of outperformed rents and rents have had some catching up to do and we've seen that really in those inner west south sitting areas where consumer demand for products through e-commerce has really driven the rents in those areas but in our West where where land rates have climbed quickly from 400 to 700 dollars a square meter the rent has been a little bit more incremental but again in both locations but whether it be inner or outer land supply and Sydney remains tight as you'll see there in 2018-19 it's tapering out over the next few years and the reason why that is is that there is a shortage of service land in western Sydney sort of what is a bit unusual is that we will start to see the Central West that that sort of moderately green color we developers like Texas logos Charter Hall Goodman have identified that the rental growth is really in those core areas where consumers are demanding sort of same-day delivery demand for industrial assets still remains incredibly strong whether it be land contaminated land super prime assets particularly I think in the sub 5,000 square meter range because a lot of developers have had the benefit that building big boxes as they're referred to is a lot cheaper than building smaller units and the demand has been there so there's really there is real demand sub 5,000 square meters but strong buyer sentiment across the board now again I've touched on some of these and we'll move through them relatively quickly because Bradley has as well a lack of land supply ecommerce which is real a topic in itself and the infrastructure piece which has a somewhat like the residential market bolstered the industrial market land supplied we're talking big areas of land here we've we've got currently now approximately 600 hectares of developable land which is compared to about 900 back in 2010 and that means that you then that's spread across a range of sites but it means that if a larger user like an Amazon for example comes to Sydney and wants to find a suitable site needs to set up within a 12-month period the land supply is tight we're expecting that that will remain like that for the next one to two years and then but there will be areas down towards where Badgerys Creek in in far western and Southwest Sydney that will be released then the rise of e-commerce I certainly the penetration of e-commerce in silliness in Australia of seventy three percent of households in Australia acquired online you've got the ten percent of retail spend that's due to grow at a rate of 25 percent per annum and when we look at our retailers and most groups that's where they're seeing their growth and that is that's where we're seeing some of these exciting new trends you know we're working with groups at the moment now that aren't doing it right now but they're they're really wanting to make sure that that their solar panels that these are groups that are facilitating the delivery that they feel that the there will be driverless cars and that they must have they'll need the power in that regard they're needing super flat floors for automation and robotics and super flat roofs for the the likelihood of drones and where it was fortunate to work with Google in Canberra for the first testing of their drones and it seems quite incredible but you know when I spoke to our head of research from Chicago and was chatting to him about it look it's it's no more dramatic than when cars first came on the scene so a lot of exciting things to come and then finally on the infrastructure boom it has real knock-on effect in an industrial that the wherever in a lot more convenient to put it throug industrial land and so that knock-on effect of having to move those tenants and users takes up you know a lot of space in what is only at you know we've across the board about two percent vacancy and then just on the walk up here just with projects like the light rail I'm you know aware of where the pavers came from where the signage came from they all came from warehouses out west and so there is that certain effect as well so there is a tapering in the industrial market but in Sydney as a tight market and so we're keen for more exciting times so before I pass it across to our gracious hosts that in summary from Brad 2019 going to be remain a bit of a tough year but things on the improve in 2020 office stable demand and limited limited supply and I think industrial analyst logistics that's a fair summary as well I think that it's the demand is not quite as strong as perhaps it is but it's a very tight market thank you [Applause] well it's all doom and gloom first of all Thank You Bradley Tristan and Mike for a very riveting set of facts and it puts us all in a position to know that where we are looking in the future is not going to be as a stable environment as it has been for the last little while now with that as lawyers with a limited amount of stock and supply in the market what we find is that there is a incentive for both tenants and landlords to secure deals and to secure them quickly as Kristin said there's very little supply in the Sydney market and if you're not in a we work environment then the demand for that you're going to be competing with a number of other businesses what we tend to see in our industry is that because of that you have a competing interest between Waring Lord and tenant people want to get their leases done quickly and they want to get them done effectively so that they don't risk being exempt on a site now generally what that means is we get a we get an email come through and it normally heads over to Melissa and her team and the tenant goes something like this dear Melissa please want to touch the heads of agreement that we've come to agree with the landlord these are the essential terms can you please give us a rundown on the potential risks of our lease now as well as areas pick up and we say oh my god how many risks would there be and the client says well we'll just give us the top ten and we always know that number eleven is going to come back to bite them in the butt so with the shorter timeframes that that we're getting we are going to see an increased risk for both tenants and landlords who were seek to try and minimize that due diligence phase or the negotiation phase through their lease so when you're looking at a site like this you'll generally find that in most leases or agreements landlords and tenants will generally have their own their own wants and needs and for the most part they generally work separate but there is the gray area and the gray area is generally where you need skills and experience in negotiating these things because they're generally the areas where there's we dispute now melissa is going to go in to a little bit of detail tonight about a few of the provisions that sit around a few separate areas and just some takeaway tips for all of you when you're looking at leases to have a think about when you're trying to negotiate your heads your heads of agreement because often the heads of agreement really sets the stage for the negotiating position it's an anchor point for both parties and it's very hard to move that anchor point in current but as Adam says the need to move between smart is great and often boy does seem slow down the process but Lisa's monetarist documents they play significant on tenants and they deserve to be read and every line needs to be read there's no such thing as a high-level review or the lease the devil is in the detail when Adam and I sat down to know about what we thought we talked about tonight we were balanced in closets for the lease back and forth with each other that's what we do and these five came up is ones that you can get bogged down in negotiation and that often we bow down to disputes because the cloner and DNA help options repairs personal world directly guarantees releases any dignity and they make holes so first thing that I'm going to chat about is options now there's really four main criteria with options the first is how we exercise them it's got to be by way of written notice now that written notice needs to say certain things it can't be an email it's what the one thing that we always say for the terms of us how many of us today here have a smartphone in their pocket and would most likely pull that out and send a quick email for business purposes without thinking twice probably most of us I know I do we really need to be careful with the exercise of Lisa speak with option sorry because the courts do look at the form of the written notice and not only the form of the written notice but the wording of the written notice there was recently a case that was heard down in Victoria where a tenant had sought to exercise its option and use the words it is our intention to exercise our option for the period of six years commencing on X and at the least commencement date the wangled hadn't provided them with a new lease and so they went off to V cat and said to V cap look we've we've elderly exercise their option and V cat said well no you didn't what you did was evidenced an intention to exercise your option and the fundamentals of contract law came through and essentially that person whilst out on their tenancy and subsequently entered into a new ways at much higher terms so the takeaway is make sure that your your written notice follows the form of the lease the next one is that it's served in time now there is some dispute about whether an option is essentially a conditional irrevocable offer to grant a new lease and if that is the case then you can't extend time because it would just be a counteroffer there's countervailing authorities on the other side that say that it's just a conditional contract the easiest way to get around all of this is just follow the timing in the lease it will generally tell you within six months from the date of termination and before three months you need to exercise your option so one thing that we always say is always look at the timings Diaries and early speak to people like tristan early if you're not going to take up your voice but have those safety nets in place so that you don't miss those dates because those dates are critical I mentioned quickly that it's got to be served in accordance with the terms of the lease again generally the lease will tell you who it's to be served on don't serve it on the agent although you may have been liaising with them for the last five years because that may not be the valid address for service don't serve it on the individuals primary place of business if that's not what the lease says and the last one is that you're not in breach of the lease now this is an interesting one because different forms of breach will affect your ability to call on an option and I might pass it over to Melissa to take you through a standard provision in relation to an option and some of the risks in it and then I'll touch on breach a bit later you will see in a commercial race and that first crush it's okay yeah it kinda sorta basis but your father's looking at that one of the things I would coming in on is that the base rent for the new lease is to be determined by the rent and that's fair enough but that course will put back into the rent review courses analyse the type of those clauses work necessarily to exercise the option so I would try and get this negotiated so that the fourteen is required to exercise the option the mark event is first reviewed is typically happens in retail base is where it's required by legislation and I try to also make that more common in commercial basis when I'm successful often depends on you know the power of the mile lieutenant and if I can't pick that I will try to build in that it's you know you pull on the label indication the market went of course I recently had a client who exercised the option to renew the rent review cause has been said that the landlord will give for its assessment of the current market rent three months before and three months after the rent review date in this case the blessed commencement date but our client needing to make plans for its business was asking the landlord what's the rent what do you think the assessment of the rent is when the local just wouldn't respond and we didn't have a lot in the lease that we could plug the landlord along with and of course if they couldn't agree on it then had to go to publish it so we could have been in the situation where the client didn't know that the commencement man until six months into the lease and that was like seeing wrong with them at all the other and I remember you're going to speak about this and but this you can exercise your option if you're in breach of the ladies that's how it reads but there is legislation that seats behind bad but see the landlord can't know your optionally speak or suffrage and I think has first said you notice that you that breach before you exercise your option so that's not really a get-out-of-jail-free card for landlords and landlords monitor their tenants and serve notices of reach along the way and just following that on a little bit from what Melissa said generally when tenants are in breach and we would seek to try to avoid granting an option they will go into forfeiture and they'll say well no you forfeited your right and we're going to come in and seize possession of the property now what is forfeiture for fishers when a landlord ends the waste due to a tenant breaching and it's generally in relation with a rent or a continuous non-monetary breach now there's three situations where the court will actually look at this and say well no we need to come to the aid of the tenant because these breaches aren't sufficient enough to give rise to them losing those contractual bargain now the court can do it by way of two means one is by specific performance enforcing the contract and ordering the landlord to specifically perform the obligations under the lease the second way which is a little bit more fruitful for most tenants is utilizing the relief against forfeiture provisions under the conveyancing act and in equity now relief against forfeiture basically is an order sort by the court whereby the tenant can say we have forfeit of the lease or at least has been a demand that we forfeit of the lease and we haven't been paying our money and really all this is is the landlord's attempt to try and get us to repay the money but we're happy to repay it and there's a sufficient bond there to cover the lease generally in those circumstances a court will grant relief and the tenant will be given the property back the other situation where equity might relieve is if there's fraud or mistake and this generally happens whereby notices attempted to be provided there's essentially some communication between landlord and tenant to an effect that yes the option has been exercised and then there's a counter-argument later on same wolf hold on a second you use that with a word intention there rather than contract so I'm not going to grant you your lease and so the court will come to the aid of tenancy if it has to in those types of situations but if there are touch points through the life of the lease where it is worthwhile going back to this going to get some legal advice and exercise of options is one of those touch points replicating a typical repair provision in a lease the lessee must maintain and keep the premises in good antenna for repair that's great what I would first say is it's all about the tenant and you're unlikely to see in a typical commercial lease an obligation on the land or to keep the building the common areas and the rest of the land in that tenant or repair and waterproofing watertight we get many complaints from tenants because there are drips and leaks in in furnaces plants won't fix so generally by truck for the clause you putting an obligation on the landlord to keep the premises the building in will prepare and that's reasonable and and usually agree to and depending on the type of premises and the nature of the tenant sometimes we also put in quite specific provisions as to landlord maintaining of roadways for example in industrial properties where there's heavy vehicles being used but with this clause I think the missing component is what is the standard of repair what standard must the tenant keep the premises in repair and that's where you want to say words to the effect of having regard to the commencement of the premise other to the condition of the premises at the commencement of the lease and get a condition report or at least photographic evidence so that you have evidence of what that condition is the other glaring omission is structural and capital repairs unless the need for those repairs are caused by the tenant or unless they arise because of their particular use of the premises a tenant shouldn't be plundered with structural or capital appears they're just tips to remember about prepare and and this is something that is what to agree in adhesive agreement if you can before that 6070 page document is produced always have regard to the condition of the premises at the commencement exclude structural and capital repairs from the tenants obligation also exclude back support Rad's tipis storms and limit the obligation for damage caused by the land or all the landlord's agents the next big one is directors and personal guarantees can I get a show of hands who signs directors or personal guarantees in this room no one good Melissa will be happy because the one thing we say to most of our clients is don't sign directors or personal guarantees this is a standard director and personal guarantee provision and what you will see is that you're essentially on the hook for almost everything you unconditionally and irrevocably agree that you're gonna be liable to the lessor for anything now you can give away your first child and some of us might be happy about that but not many are going to be happy when they're coming after our houses for something which were not liable for so we really need to be careful from a litigation point of view and something that Gavin I do a lot of is try to work out and structure ourselves so that we don't giving personal guarantees and the way that you might do that in a heads of agreement is a greater increase the amount of the bond that you're going to give rather than giving a personal guarantee potentially offer six months up rather than an unconditional and unlimited guarantee so there's or just getting you on this the principal obligations generally are wide there they've generally not limited by time and that's a big problem so what you may find with guarantees is that you've assigned your lease but are you still I will under the guarantee and that's really a big problem that a lot of people don't think about when they assign because they're more than happy to try and get get out of their waste and continue moving it forward so tips to remember with respect to guarantees negotiate a limited guarantee if if they're gonna have to give a guarantee try and specify an amount let's try it specified to six months of us or alternately twelve months it may be for the entirety but least you'll have certainty as to where you're going negotiate a provision in there that you guarantee seizes upon assignment what you don't want to be is liable for the incoming tenants obligations under the lease because you have no control of the premises by that stage and lastly and this is more from a litigious point of view but undertake searches on whoever is giving a guarantee if you are getting one because the one thing that you don't want to do is seek to rely on you guarantee provisions and find out later after running a contentious litigation that are that the person's amount of straw because realistically what we're going to end up with is a very hollow judgement I before is that the landlord's own messages the negligence willful actsthat are excluded because a tenant shouldn't have to identify the landlord or the labels negligence more modern leases will exclude that now but old ones it won't be so you always have to look out for that and also in the end all the way also in the indemnity here the Leslie indemnifying the listen or against any damage contributed to by the lessee oryx agents that's not uncommon to see and what it doesn't do is tie the indemnity to the premises and what the lessee does in the premises so you need always look to make sure the releasing andamanese focused on the the premises so a couple of important considerations for releases and indemnities always try and limit them to direct loss try and get away from the reasonably foreseeable losses it's generally going to end up on my desk or Gavin's desk and we're gonna be having a fight about what was reasonably foreseeable avoid phrases such as a rising from are in connection with their ambiguous people don't know what they mean and it opens up Pandora's box with respect to well I think that might have been in connection with and where does a chain of causation stop so if we can try and eliminate that from our drafting then everyone's going to be a lot better off try and limit the coverage to the lease holder the tenant try not to indemnify them their agent says no as I said all their directors employees third parties because that's just going to lead to unnecessary viability require everybody to take to mitigate now I was chatting to Melissa about this today and she said oh but Adam you've got a common obligation in mitigating I said yeah that's exactly right but having a contractual obligation there gives the court another way to find in your favor should you have to go and have it have a dispute with respect to the value of your mitigation and lastly limit the indemnity to reasonable expenses and not indemnity now most standard lease costs that you get or leases sorry that you get from a landlord will say that you're in Tim defied it on an indemnity basis including so it's an acquired basis for legal fees if you could try to avoid those I think you'll be in a much better position it's like always advise my clients to show their insurer the releasing indemnity courses as well as insurance courses to make sure their insurance cover cover is named for the risk there's human under those forces because contractual indemnities will be wider than the common law and you need to make sure you've got the insurance to cover that make gorget when you're entering into a lease the last thing you want to think about I guess is exiting but the mate board I assure you is one of those touch points where we always been a call and there the clause is where I typically have to go into the adamant garden because the dispute is brewing think about mail order as the interim if you're all going into commercial premises and you're using the existing tenants speed out is it your obligation to remove that figure at the end you know you've gotta clean up maybe red paint and how you decorate but what else see units do and again this is another example where it might be good to agree for the landlord at the beginning itemize what the obligations are because they can get really expensive Adam and I have a just had a matter of where our client at least among other things where it did do some damage to that cleanroom and at the end to make border was upfront yes they wanted to make with the damage and the lab work will be respond and so there was delay which meant that the rent was still ticking and then when the landlord needs respond there was a dispute as to what domain she did our client floors and what damage was pre-existing a condition report a photographic evidence at the time who have gone a long way to help to solve that dispute but that wasn't in existence the other thing was that the landlord the overarching thing was that the landlord the main wood had to happen to the landlord's reasonable satisfaction was anything reasonable here and so we were having an argument to what was a reasonable repair what wasn't and we also had to use the landlord's trades and again we then how to dispute as to whether we could use our own or not the other gem with that and this is what you do need to read every rider the lease is that some of the obligations were in the mates work traditions and others were in the provisions related to termination of a lease and appointed only read half and didn't realize that was the other so mate what is one of those provisions I do always forget to say at the beginning to try and let the tenon exit cleanly at the end so just following up on that what Melissa has said is get yourself a condition report try and tailor the course so that you can agree upfront in principle as to what the works will be and discuss the works that you're gonna do with the landlord at or about the time that you're doing them that's generally going to resolve most of the disputes and whilst you might be paying a little bit more on the front end at that point of view it's much better than paying more on the back end when you still stuck with your rental liabilities and then a dispute as to where you're gonna go with it lastly don't get fixated on with all things why the difference between best endeavours and reasonable endeavours I like this as an example because it's one that Melissa and I always get when we get a drafting that comes down so no we're not going to give best endeavours we'll just get to our reasonable endeavors they mean the same thing the courts have said they mean the same thing so try not to get fixated on those good old things because all that needs to do is it slows down the negotiation for your clients and it often will mean that you will take other disputes on which aren't really necessary because people have got their back out of joint in relation of this opportunity to negotiate it but to don't meet people over negotiate on the main services because I see an important part of my job is to protect my client but also to ensure that the landlord-tenant relationship going forward is a good one when the lawyers at the leasing agents fall away you you want to have a good relationship with the landlord because the best lease is the one that you control in the bottom drawer and not have before during the term and that brings us to an end from the royal east side of leasing unless there's any questions nope perfect well what I'd like to do is thank you all for coming today we appreciate it it's been a been a great evening hearing from the gents at CBRE I'd also personally like to thank each and every one of you I think your presentation was fantastic and it gives us all of what to think about and I might just offer a token of thanks and if we can all express our congratulations in the usual way on the round of applause for the gents at CBRE [Applause]
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