Essay Mortgage – Rent Review – Deemed Assignment – Law Assignment Help

Assignment Task

Problem Set

Task 1 is a letter of advice. You are told to assume it is 11 August 2021 and to write a letter of advice to your tenant client Sweat Shop Pty Ltd comprising two parts. You are to advise on:
ONLY the specific matters raised by your client during their attendance (see attendance note of meeting with Arnold and Rosemary Higgins, the directors of Sweat Shop Pty Ltd);and
Include in the letter two draft clauses:
a clause giving your client an exclusive right to be the only specialty sports store in the Centre; and
A clause stating that in the event of a relocation of the store, the new location must be visible from the entrance to the gym.
4457709525FYI – When it comes to leases, you generally have three categories:1) commercial e.g. a warehouse or office space/building; 2) residential; and 3) retail shop leases which are regulated by the Retail Shop Leases Act 1994 (Qld). Here you have a Retail Shop Leases Act lease and that means the lease is regulated by that legislation.
NB The Retail Shop Leases Act 1994 was amended in late 2016; the changes came into force from 25 November 2016.
You must read the resources. You will omit key items if you try to complete this task without doing this as the legislation provides for certain rules and requirements, ultimately so that the deal struck between the lessor and the lessee has some equity.
00FYI – When it comes to leases, you generally have three categories:1) commercial e.g. a warehouse or office space/building; 2) residential; and 3) retail shop leases which are regulated by the Retail Shop Leases Act 1994 (Qld). Here you have a Retail Shop Leases Act lease and that means the lease is regulated by that legislation.
NB The Retail Shop Leases Act 1994 was amended in late 2016; the changes came into force from 25 November 2016.
You must read the resources. You will omit key items if you try to complete this task without doing this as the legislation provides for certain rules and requirements, ultimately so that the deal struck between the lessor and the lessee has some equity.

Please read the Lessor Disclosure Statement. Compare the terms of the Disclosure Statement with the terms of the lease. For the points raised by the client, are there any discrepancies between the documents? Your client’s interests are not fully protected if an amendment they are seeking is only contained in the Disclosure Statement and not in the lease.
Please read the “When in Practice” in relation to the preparation of Legal & Financial Advice Reports.
A lease advice is a difficult task to complete well, and in practice will take you time to master. You must understand the document, particularly the commercial terms and things like relocation as discussed between the parties and the provisions relating to relocation in the legislation. Please do not just quote slabs of the document to your client as advice. Generally a table format is a good way to present the lease advice (if a table is used you need a cover letter), but there are no rules. Clearly pages of type without headings will not be easily read or digested by your client. Give some thought to the format you use.
In writing this letter you should briefly state the basic commercial terms of the lease by confirming:
Lessor
Lessee
Premises
Term
Option

Mortgage. Advise there is a mortgage over the property and that the mortgagee’s consent to the lease might be required (see General Consent Form 18 at the back of the lease document in your In Tray). See below for a further explanation.

Mortgage – In practice your lease advice should contain reference to the mortgage over the property (see General Consent Form 18 at the back of the lease document in your In Tray). What would the mortgagee require to consent to the lease? The mortgage provisions will provide for the case where the charged property is to be leased; the mortgagee will have certain requirements that they will require be met, and the tenant really has to agree to these if the lease is to be granted. If the consent of the mortgagee to the lease is obtained, the mortgagee will be bound by the lease. What that means is that if the lessor defaulted and the mortgagee went into possession, the mortgagee’s rights must be exercised subject to the terms of the lease. For our purposes it is sufficient to advise the client that there is a mortgage over the property in favour of the National Australia Bank and that consent documents will be prepared. Note under the amendments the Retail Shop Leases Act 1994 the lessor has to pay the cost of obtaining the mortgagee’s consent. (In the past this was always passed on by the lessor to the lessee).
Tips for letter of advice on specific matters raised by your client during their attendance:
In practice, a lease advice would also cover the remaining key terms of the lease e.g. redecoration or refurbishment requirements as these will be a further expense and obligation for your client. You do not have to do so here. Limit your advice here to the specific matters your client has raised in the record of attendance.

Rent concession
Does the lease contain the agreed rent concession for the first 6 months? If not, can it be included in the lease? Alternatively, is it more likely to be documented separately in a “Rent Free Deed / Rent Concession Agreement” in which case you would need to amend clause 1.9 to include a reference to the deed or agreement. Whether you record the concession in a deed on the one hand, or simply in the lease on the other hand, will also depend on the circumstances and your client’s instructions. In this task, given the very limited rent reduction, the rent concession term would best be recorded in the lease.
FYI – Rent Concession Agreement – In the past, a Rent Concession Agreement or Rent Free Deed would not be registered. That meant that deals/ incentives/ contributions to tenant’s fit out were all confidential between the landlord and the tenant. You can now register an instrument of amendment such as a Rent Free Deed (s67 Land Title Act 1994 (Qld)), and that may be preferable if the rent concession or rebate is significant or complicated. Whether to register a Rent Concession Deed will depend on the circumstances and your client’s instructions. If it is registered, the details of the agreement are on the public record.

Turnover rent
FYI – Rent – Please read the rent clause carefully. In practice you would compare rent with your client’s instructions; you NEVER assume that the commercial terms agreed are reflected in the document. In this task you are to explain the base rent, percentage rent and rent review.
You need to give a very clear and concise explanation as to how the turnover rent is to be calculated. This is a difficult concept to explain. It does not mean “each year the rent increases by 5%”. To explain this to your client you will need to be certain in your own mind as to how turnover rent is calculated. You have a figure for base rent. Go to Clause 4.7 of the lease. Turnover Rent is calculated as set out in clause 4.7(3). You just need to explain to the client how it will be calculated (by reading and interpreting this clause). Your explanation is best illustrated if you can give a simple working calculation (an example) for your client.

Rent review
Note that turnover rent is a separate and distinct concept to rent review. The lease specifies the year anniversaries that the base rent increases – this is rent review. So the lease commences 1 September this year and the first rent review is 1 September next year. Is this the only review and if not when are the other reviews? State the dates of all rent reviews (including if the option is exercised and during the option period) and explain the method/s of rent review (see clauses 4.3 and 4.4). Distinguish between ‘indexation’ and ‘market review’.

Deemed Assignment
Your client might rearrange the family member ownership of shares in Sweat Shop Pty Ltd. Will there be a deemed assignment if this happens? You need to give your client advice about if the change in shareholding would trigger a deemed assignment (explain whether Landlord consent would be needed and if so the conditions to consent). Also advise as to what are their options if they wish to avoid a deemed assignment under the lease in these circumstances. You don’t need to draft an amendment just explain what sort of amendment would assist the client in avoiding a deemed assignment.

Permitted use
Does the permitted use extend to ‘associated items’? Your client wants to sell any items associated with sports equipment and sportswear (that would include items such as sporting DVD’s, sports drinks, strapping tapes etc.).
Exclusive use
Does the lease provide that the client will be the only ‘specialist’ sports store in the centre?
Relocation
In what circumstances can the landlord relocate the client’s store? Consider the 3 issues raised: honest intention to refurbish, compensation and of course that the new location is adjacent to the gym.

Guarantee
Will Mr. and Mrs. Higgins remain liable under the guarantee provisions in the lease if they sell the business and assign the lease? What does s50A Retail Shop Leases Act 1994 say on this issue?

Tips on drafting two clauses:
For the two draft clauses you include in this letter you need to set out clearly and concisely the wording of the amendments – what words of what clause you want to amend/delete/ insert. You must advise the specific clause numbers and where the clauses would be inserted in the lease.
Note that you may need to amend both an item in the Reference Schedule and a clause in the body of lease (the Schedule). Note however that is not a rule; there can be an amendment to an item in the Reference Schedule only. But if there is something clearly lacking in the related clause in the Schedule, then the clause would also need amendment. Conversely, there may be some instances where the amendment must be made in the body of the lease itself – and amendment to the Reference Schedule alone would be insufficient.
Remember for the purposes of the second part of the Task 1, you are to limit your draft clauses to the two issues in the materials.