Commercial Lease vs Commercial Tenancy Agreement (CTA)

We often have landlord clients ask us if it is ok to enter into an REIQ Commercial Tenancy Agreement (CTA) as opposed to a full commercial lease which has been professionally drafted by a lawyer. We advise landlords against entering into a CTA as we are of the view that it offers limited protection compared to a properly prepared lease. Some of the main issues with a CTA include:

• It does not have any provision for a bond (either cash bond or bank guarantee)
• It contains limited make good provisions
• There are no provisions for personal guarantees from the directors/trustees of the tenant company/trust
• It cannot be registered on title
• It cannot be used where the term (including options) are more than 3 years
• The tenant is not required to properly insure
• There is no requirement on the tenant to pay for water, gas, telephone and electricity usage
• The outgoings that can be charged to the tenant are limited
• There are no terms covering specific issues/matters concerning the property such as car parking, licenced areas, leases for part of a building/lot, storage spaces etc

In essence, a CTA document lacks a lot of substance when it comes to properly protecting the landlord’s rights and ensuring the tenant complies with its obligations. There is no substitute for a properly drafted lease prepared by a lawyer experienced in leasing. A CTA may be useful for small scale leases over short periods of time (such as 12-18 months), however any landlord should weigh up the risk of losing certain rights when using a CTA compared with a commercial lease prepared by a lawyer. Don’t be fooled into thinking that a CTA is a cheaper option – when a problem arises (as they often do during leases) you will wish you had the protection of a well prepared lease document.

Smith & Stanton has a number of lawyers who are very experienced in all aspects of leasing. If you need a lease prepared, or need advice on a lease or leasing issue, please contact one of our lawyers that specialises in this area.