It is important for the Landlord and the Tenant to register a commercial lease on the title of the property with Landgate (WA’s register of land ownership) as it is the best form of security for the Landlord and the Tenant.
It is therefore important that a condition is set out in the lease agreement that obliges the landlord to register the lease. Whether or not you should register a lease depends on who you are and your interests in the property in question.
This e-checklist will focus on:
1. When can you register a lease and why you should register a lease; and
2. Implications for Landlords, Tenant and Buyer for not registering a lease.
Registering a lease
A lease can be registered at Landgate when the term of the lease (excluding options) exceeds three years. This is done by lodging at Landgate a completed form, attaching an original copy of the lease and paying the relevant registration fee. Registering a lease requires the consent of the Landlord and the Mortgagee of the land (where applicable).
Registration is defined in section 7 of the Property Law Act 1969 (WA) by the following definition:
“registered or duly registered means registered in the manner provided by the Transfer of Land Act 1893 where the land affected is under that Act, and otherwise means registered in the manner provided by the Registration of Deeds Act 1856.”
Tenants in actual possession of an unregistered lease are given protection pursuant to section 68 of the Transfer of Land Act 1893 (WA) (“TLA”) where the term does not exceed 5 years. However, section 68 does not protect a Tenant’s option to renew or extend the lease unless the lease is registered or protected by caveat.
Where a lease exceeding five years is unregistered, either the Landlord or the Tenant can terminate the lease when the property is sold to a third party. The registration of a lease exceeding five years prior to the transfer of land will ensure that the lease cannot be terminated by the new owner or the Tenant.
Implications for Landlord
A potential Buyer of a leased property should likely seek evidence that the existing leases are valid and enforceable to ensure continuity of occupancy (and value) of that property.
Any Landlord intending to sell should ensure:
1. leases on the property which can be registered are registered on the title;
2. leases on the property which cannot be registered are protected by registration of a caveat on the title; and
3. that the lease agreement obligates the Tenants to enter into a deed with new owners of the property whereby they affirm the continuation of the lease.
It may also be a requirement of the Mortgagee for the leases to be registered as a condition of providing the funding. Additionally, subject to certain exemptions, leases with a term exceeding 20 years (including options) require Western Australia Planning Commission approval as this could be considered a subdivision of land.
Landlords should also ensure that the lease includes an obligation on the Tenant to remove the expired leases. This is done by lodging at Landgate a completed surrender form which needs to be signed by both the Landlord and Tenant.
Implications for Tenant
Tenants should ensure that it is a condition of a lease that the lease exceeding five years be registered on the title. Only by registration of the lease will the Tenant have indefeasibility of title. If a lease exceeding five years is not registered the Tenant and the new owner may terminate the lease on the Landlord selling the property.
Tenants should also note that any Mortgagee with a prior encumbrance to the lease may need to consent to the registration of the lease. As such, Tenants will require the cooperation of the Landlord in order to register a lease.
If the lease is silent on the issue of registration and the Landlord does not agree to register the lease, the Tenant should consider registering a caveat on the title of the property. This will serve to alert all potential Buyers of the property to the existence of the lease but will not offer the same security as registration.
Implications for Buyer
Buyers of a leased property who wish to retain a particular Tenant will need to ensure that the lease is registered. A Tenant could walk away upon a change of ownership of the leased property.
A Buyer should ensure that:
1. it is a condition of the contract for sale that all leases (that are capable of being registered) are registered prior to the settlement of the sale; or
2. the Tenant confirms in writing in a deed with the new owner that the Tenant affirms the lease after the sale of the property.
This checklist covers the bare basics only and there is much more to cover on this important issue. We would be pleased to discuss your leasing requirements.