The right to occupy premises can be granted by a lease or a licence. The main test that distinguishes a lease from a licence is that a lease confers on the occupier exclusive possession. There is usually no exclusive possession under a licence.

Licences are often coupled with a lease, ie a licence for storage, car parking or outdoor seating area.

There are different types of licences and leases. It is important that the different types of licences and leases be distinguished as they impact upon transactional aspects and the rights of the parties.

Please note that the definition of “retail shop lease” in the Retail and Commercial Leases Act 1995 (SA) includes both leases and licences.

See Licences and leases.

As all land in the ACT is leasehold any lease granted by the registered proprietor of land is therefore a sublease.

Note that the definition of “lease” for the purposes of the Leases (Commercial and Retail) Act 2001 (ACT) includes licences. See s 12 Leases (Commercial and Retail) Act 2001 (ACT).

All leases must comply with the following requirements in order to confer a valid leasehold estate:

• be in writing (save in the case of leases for less than 3 years duration in Victoria);

• have certainty of duration;

• comply with the statutory requirements as to the form of writing and registration; and

• subdivision requirements where the lease of land constitutes a subdivision.

Leases for less than 3 years may be created without writing: s 54 of the Property Law Act 1958 (Vic).

A subdivision is defined as “...the division of land into two or more parts which can be disposed of separately” and there are no statutory subdivision requirements, as part of the formal requirements of leases: s 3(1) of the Subdivision Act 1988 (Vic).

Only leases for a lease period of more than 3 years must be in writing: ss 33 , 34 and 35 of the Property Law Act 1969 (WA).

See Formal requirements of leases.

In general, leases must be in writing: s 29 of the Law of Property Act 1936 (SA). However, oral leases and licences may create rights under the Retail and Commercial Leases Act 1995 (SA), see definition of “retail shop lease” in s 3 .

Development approval is required for a lease or licence for a term of more than 6 years (including extensions) of a part allotment of land on which there is no building that is suitable and is used for human occupation.

An informal agreement to lease, which often precedes a formal lease agreement, is a species of a heads of agreement. It is important that it be clear whether the parties are bound and if so, when ensuring that they are not bound prematurely.

The parties may also enter into a formal agreement to lease, ie an agreement to grant a lease in the future without vesting title to the leasehold estate to the prospective tenant, eg when the landlord is in the process of purchasing the property or is acquiring an interest as head lessor.

Key lease terms include:

• option to renew;

• rent review;

• requirement to obtain the landlord's consent;

• obligation to repair, maintain and replace;

• redecoration;

• obligations of the landlord; and

• obligations of the tenant.

A lease must be properly executed to ensure that it is fully binding on all parties.

Covenants in a lease are implied under the Conveyancing Act 1919 (NSW), which may be excluded or amended. There are also short forms of covenants in the Conveyancing Act, which can be adopted and standard forms of lease are available to purchase.

There are generally no implied covenants in Victoria, however in the case of leases of registered land, there are some very basic covenants implied under s 67 of the Transfer of Land Act 1958 (Vic). In the case of residential tenancies in Victoria, the Residential Tenancies Regulations 1998 (Vic) contain prescribed forms for residential lettings. All other leases and tenancies in Victoria are not affected by these provisions.

In Queensland, certain sections of the Property Law Act 1974 (Qld) imply covenants on the part of tenants and landlords.

Covenants in a lease are implied under the Transfer of Land Act 1893 (WA), which may be negatived, varied or extended by express provisions in the lease: s 131 of the Transfer of Land Act 1893 (WA). There are also short forms of covenants in the Transfer of Land Act 1893 (WA), which can be adopted: s 94 and Sch 12 of the Transfer of Land Act 1893 (WA).

Covenants in registered leases are implied under ss 124 and 125 of the Real Property Act 1886 (SA) and may be excluded or amended. There are also short forms of covenants in Sch 16 of the Real Property Act which can be adopted.

There is no stamp duty payable on leases in South Australia, NSW, Vic, WA and ACT.

See Drafting and reviewing leases.

Sections 119 and 120 of the Land Titles Act 1925 (ACT) implies specified covenants on behalf of lessees and grants powers to lessors. These implied covenants and powers may be excluded or amended.

For leases of 30 years or more entered into prior to 29 April 2014, stamp duty is payable at conveyance rates.

From 29 April 2014 stamp duty is charged on commercial leases where a premium is paid by the lessee for the lease. A premium is considered to be any consideration (whether monetary or non-monetary) that is paid, or agreed to be paid, for the lease. If a premium is paid for the grant or transfer of a commercial lease and the premium exceeds the determined threshold of 25% above market rent over the term of the lease, duty is payable on the total premium component and will be payable at the conveyance rate applicable when the lease was entered into. See s 6A Duties Act 1999 (ACT).

Lease incentives which may be granted by landlords include rent free periods of occupancy, fit-out contributions by the landlord and removal costs.

There may be tax implications of lease incentives on both the landlord and tenant.

See Lease incentives.

An assignment of a lease is the transfer of the ownership of the lease from the existing tenant to the proposed tenant. An assignment of a lease differs from a sublease in that under an assignment, all of the existing tenant's rights in the lease for the balance of the term are transferred. Under a sublease, the existing tenant (head tenant/sub-landlord) retains the right of reversion of the lease at the expiration of the sublease which must be a date prior to the expiration of the lease. An assignment for less than the balance of the term of the lease operates as a sublease.

The enforcement of lease covenants between the original parties to a lease and the successors and assigns of both the original tenant and the original landlord has given rise to a complex body of judicial decisions.

The entitlement to assign a lease is incident to every lease subject to exceptions. Where there is a condition that the tenant may not assign the lease without the landlord's consent, the covenant is normally subject to a proviso that the landlord's consent cannot be unreasonably withheld.

Part 5 of the Retail Leases Act 1994 (NSW) (RLA) limits the grounds on which the landlord can refuse consent and sets out the procedure to apply for consent.

The landlord may not unreasonably withhold consent allowing the tenant to assign the lease or stipulate for payment of a premium to allow assignment “unless the lease contains an express provision to the contrary”: s 144(1) of the Property Law Act 1958 (Vic).

The Retail Leases Act 2003 (Vic) excludes the operation of s 144 of the Property Law Act 1958 (Vic) in relation to assignments but provides a framework, which regulates when consent of the landlord is needed and when it may be lawfully withheld.

The landlord may not unreasonably withhold consent allowing the tenant to assign the lease “…unless the lease contains an express provision to the contrary…”: s 80 of the Property Law Act 1969 (WA). Section 10 of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) limits the landlord’s right to refuse consent to circumstances where there are “reasonable grounds”. Section 10 has not been amended under the recent amendments to the Act that came into effect on 1 January 2013.

The entitlement to assign a lease is incident to every lease subject to exceptions. Where there is a condition that the tenant may not assign the lease without the landlord's consent, the covenant is often subject to a proviso that the landlord's consent cannot be unreasonably withheld.

Part 7 of the Retail and Commercial Leases Act 1995 (SA) (RCLA) limits the grounds on which the landlord can refuse consent and sets out the procedure to apply for consent.

See Assignment of leases.

In respect of retail and commercial leases, lessors cannot refuse consent to an assignment where the lessee has complied with the provisions of Pt 11 of the Leases (Commercial and Retail) Act 2001 (ACT) and satisfied the lessor of the financial standing and skills of any proposed assignee and, where relevant, guarantor together with the proposed use of the premises following the assignment.

An option to renew confers a right to call for a further lease. Options may either be call or put options. The majority of options in commercial leases are call options.

A call option will commonly contain preconditions regarding:

• the time and manner of exercise of the option; and

• the effect of a breach of the lease covenants by the tenant.

The failure to strictly comply with any of the preconditions is fatal, rendering the purported exercise invalid with the consequence that the landlord is not required to grant the tenant the further term.

Special provisions apply to retail shop leases under the relevant legislation of each state and territory.

Under s 32 of the Retail Leases Act 1994 (NSW) (RLA), tenants with a lease containing a market rent review in the first year of the further term, are entitled to request a determination of the current market rent prior to the last day on which it is required to exercise the option, and the time to exercise the option is extended. This gives the tenant certainty as to the rent before it exercises the option (and is thereby bound to enter into the option term).

Section 133E of the Conveyancing Act gives statutory relief to those tenants who would otherwise be refused a renewed lease because the tenant breached the precondition of the option that they comply with the lease covenants.

Section 27(2) of the Retail Leases Act 2003 (Vic) limits the circumstances in which the landlord may refuse to allow the tenant to exercise an option.

Section 83C of the Property Law Act 1969 (WA) gives statutory relief to a tenant, where the tenant has breached an obligation under the lease, which would preclude the tenant from exercising an option under the lease.

Section 20B of the Retail and Commercial Leases Act 1995 (SA) (RCLA) requires that, in general, the term of a retail shop lease, including rights of renewal, must be at least 5 years. Under s 20J of the RCLA, the landlord is required to give the tenant notice of the landlord’s intentions regarding renewal of the lease. Division 3 of Pt 4A of the RCLA gives tenants under shopping centre leases preferential rights of renewal.

See Options to renew.

A lease that is registered under the Real Property Act 1900 (NSW) (RPA) may be varied to:

• increase or reduce the rent;

• increase or reduce the term of the lease; or

• vary, omit or add a provision of the lease: s 55A(1) RPA.

Variations as to the premises leased may not be varied under the RPA. The addition of a landlord or tenant cannot be effected by a variation.

Only leases with at least 10 years unexpired may be registered under the Transfer of Land Act 1958 (Vic): s 11(1) . Section 67A of that Act allows variations of registered leases to be made by the registered proprietor with the consent of the lessor but provides that such permitted variations do not include:

• a transfer or assignment of a lease; and

• an alteration of:

Paragraph 2.8.17 of the Landgate Land Titles Registration Practice Manual provides that:

A variation document of a freehold lease cannot be accepted for registration, however, variations to a freehold lease can be included in an extension of lease, sub-lease or transfer of lease document.

A person who acquires an interest in land takes free of any sublease that has a term exceeding 3 years unless that sublease has been registered on the title to the property. See s 58(1)(d) Land Titles Act 1925 (ACT).

A variation of a sublease does not bind any third party unless the variation has been registered. The current form of variation of sublease is Land Titles Form 022-VSL.

It is not possible to register a variation of the terms of a lease that is registered under the Real Property Act 1886 (SA) (RPA) unless an extension of lease is registered in accordance with s 153 of the RPA. Such an extension can include provisions which:

• increase or reduce the rent;

• increase or reduce the term of the lease; or

• vary, omit or add a provision of the lease.

It is common for an extension of lease to extend the term of a lease for one day in order to provide a means of registering such variations.

Variations as to the premises leased or the addition of a landlord or tenant cannot be effected by an extension of lease.

See Variations.

A concurrent lease is a lease of the landlord's rights and obligations under an existing lease. This type of lease arises where the landlord grants a second lease over the same property, which is “concurrent” with the term of the existing lease. The result is that the second lessee (eg under the concurrent lease) effectively becomes the lessor of the first lessee under the original lease. Concurrent leases are very flexible and may be useful in the following circumstances:

• it enables a landlord to divest itself of the management of a property or of a particular lease;

• taxation advantages; and

• as a potential vehicle to resolve disputes between the landlord/vendor and the tenants during the sale of a commercial building, which is subject to existing tenancies, and the landlord/vendor is not prepared to deal with issues arising from the leases.

See Concurrent leases.

The grant by a tenant of a mortgage over the lease occurs when a tenant obtains a loan and the mortgage over the lease forms the security of the lender over the tenant's assets or business.

On default by the tenant, the mortgagee may enter into possession of the premises and conduct the tenant's business and dispose of the business and of the lease. The obligation of the mortgagee to the landlord depends on whether the mortgagee is in possession and may be limited by the relevant legislation.

If the tenant of a registered lease becomes bankrupt and the tenant’s trustee disclaims the lease, the mortgagee may apply to the registrar to record the disclaimer, which then operates as a foreclosure and transfer to the mortgagee of the interest of the bankrupt in the lease: s 68(1) , Transfer of Land Act 1958 (Vic).

See Mortgages over leases.

The main ways in which leases can be brought to an end are:

• effluxion of time, if the lease is for a fixed term;

• notice to quit, if the lease is periodic (eg month by month);

• acceptance of repudiation of the breach of an essential term;

• forfeiture, if the lease so provides;

• disclaimer in case of insolvency;

• merger;

• statutory grounds;

• break clauses; and

• surrender.

See Termination of leases.

Claims for unconscionable conduct or misleading and deceptive conduct must be brought under the Competition and Consumer Act 2010 (Cth).

Part 7A of the RLA also contains unconscionability provisions. However, these only apply to retail leases and do not apply to non-retail commercial leases.

Part 9 of the Retail Leases Act 2003 (Vic) contains unconscionability provisions. However, these only apply to retail leases and do not apply to non-retail commercial leases.

By virtue of the Fair Trading Act 1987 (SA), the Australian Consumer Law established under the Competition and Consumer Act 2010 (Cth) is applied as part of state law.

Part 5 of the Leases (Commercial and Retail) Act 2001 (ACT) contains provisions relating to unconscionable or harsh and oppressive conduct. These provisions apply to specified commercial and retail leases.

Part IIA of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) contains unconscionability and misleading or deceptive conduct provisions. However, these only apply to retail leases and do not apply to non-retail commercial leases.

See Unconscionable conduct.