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QLD Commercial Lease Security Deposits

Discussion in 'Property Law Forum' started by T1m, 17 August 2014.

  1. T1m

    T1m Active Member

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    Hi,

    i'm a little confused on how commercial lease security deposits work. i'm about to buy a small office block and am wondering if i need to ensure that in the contract of sale i add a clause which requires the existing security deposit to be transferred from the old owner to me as the new owner.


    Thanks,

    T.
     
  2. Sarah J

    Sarah J Well-Known Member

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    Hi T1m,

    By security deposit, do you mean a bond (or advance rent) paid by the lessee?

    If this is the case, it would be best to include a provision in the sale-purchase agreement providing for the transfer of any current lessee's bonds/advance payments.
     
  3. T1m

    T1m Active Member

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    Hi Sarah J,

    Thanks for your response, i'm referring to the bond. is there any provision in legislation which my actions must comply with?
     
  4. Sarah J

    Sarah J Well-Known Member

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    Hi T1m,

    There are no specific provisions, that I'm aware of, relating to bonds for commercial lease agreements.

    For retail lease agreements, there is the Retail Shop Leases Act 1994 (Qld) which governs things such as opening hours, unconscionable provisions etc. In relation to bonds, there is no obligation to submit the bond up to an authority or keep it in an interest/trust account. However, the bond must not be more than the equivalent of one month's rental period. See here for more information about retail lease agreements: Queensland Government Guidelines.
     
    Ian Macleod likes this.
  5. Sophea

    Sophea Well-Known Member

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    Hi T1m,

    I assume you are referring to a situation where the building currently has tenants in it and the old owners are holding their bond, and you are wondering whether you need to include a clause to have that bond paid to you. Yes this would be very prudent, considering the lease will likely be assigned to you through the contract of sale and you will be the one who pays or withholds it at the end of the lease.
     
  6. Sarah J

    Sarah J Well-Known Member

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    Hi T1m,

    In that case, you can do one of two things:
    1. Write in the Sale Purchase Agreement (SPA) that the vendor transfers the bond to you and in return, you will take on all rights and responsibilities under the lease agreement (between vendor/old landlord and tenant), including obligation to repay the bond at termination of lease as well as right to deduct amounts from the bond for non-payment of rent etc. In this case, you should obtain a copy of the lease agreement and read it carefully; or
    2. Write in the SPA that the vendor returns the bond to the tenant and the tenant pays you the bond under a new lease agreement (this has the benefit of putting you in a direct contractual relationship with the tenant and being able to exercise rights under the new lease agreement directly), and have the vendor end the old lease as a condition in the SPA. In this case, you will need an undertaking from the vendor that he/she will repay the tenant the bond at completion as well as obtain an indemnity from the vendor in the event you suffer any loss (e.g. tenant fails to pay you bond, or tenant does not receive bond from landlord and claims bond from you instead).
    The second method is quite complicated, so I would suggest the first, but it is up to you. This is not regulated by legislation as far as I am aware.
     
  7. MKB

    MKB Member

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    Hello, I am about to sign a commercial lease agreement in Queensland and the agent is asking for a three month security bond, which seems high. Where I currently am renting, the security bond is one month. I have read that in retail leases the maximum security bond is for 4 weeks rent. Does this also apply to non-retail commercial leases?

    Cheers
     

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