Leasing Common Property
Bodies Corporate can’t carry on business, but they can still make a buck – one way is to grant a lease over part, or even all (!) of the Common Property. A lease can be granted to anyone, whether owner, occupier or third party…
Leases are legal documents under which the Body Corporate, as lessor / landlord, grants an exclusive right of use and occupation of common property to a third party, the lessee / tenant. A lease may be periodical (i.e. month to month) or for a fixed term (i.e. three years). The lease must be for a defined area of common property (the ‘demised premises’).
Sometimes leases will allow a tenant to use the demised premises for a particular purpose; like carparking or storage. A lease can also allow a tenant to undertake improvements; for example, installing a vending machine (provided of course the tenant pays the electricity costs!).
It’s fundamental to a lease that the tenant is granted the exclusive right of use and occupation of the demised premises. This means that the tenant, once they have possession of the demised premises, is entitled to exclude everyone else.
In a community titles scheme what land is not part of a lot, is common property. All owners and occupiers have a right to access and use the common property, unless that use is restricted by the by-laws, or someone else rights take precedence. Other superior rights include exclusive use, an occupation authority (granted to a caretaker or letting agent) or an easement (for example granted to a neighbor for access purposes).
Sometimes a lease is not the right option; for example, if it is important that the rights of use and occupation are not exclusive to the lessee. In that case it may be best to grant a license instead. Licenses are effectively identical to a lease except that a license grants non-exclusive use of the demised premises.
A good example of where a license may be best, is a common property bike storage area. As there are multiple users, no one should have exclusive rights of use and occupation. The Body Corporate would also want a written agreement with each user, that includes a waiver and indemnity for loss or damage (to the occupier’s bike) given by each user of the storage area in favor of the Body Corporate.
There are formal requirements for granting leases. As the owner of the common property the Body Corporate decides whether to grant a lease. In Accommodation Module complexes a lease or license can be granted for a term of ten (10) years or less if approved by special resolution. For more than ten years a resolution without dissent is required. This is because a long-term lease is effectively alienating the land from the use of the other owners and occupiers in favor of the tenant.
In a Standard Module complex leases or licenses with a term of over three years must be approved by resolution without dissent. Three years or less requires only a special resolution.
If the tenant is going to get a commercial advantage or return from the lease, then the Body Corporate should get a market rent under the lease; for example under a lease to a telecommunications provider to install and operate a mobile phone tower.
You can register a common property lease with the Titles Office. Registration puts the world on notice of the lease. To register a lease, it must be in registrable form (that is, in the right form), properly executed and the relevant registration fee paid.
Almost always if you want to register a lease of part of the common property, the lease will need a sketch plan attached. There are special requirements for that plan, which is why it is normal (but not mandatory) for a surveyor to be engaged to prepare the sketch plan.
There are a number of tricks to do with leases of common property. For example, if you lease part of the common property for a term of more than ten (10) years you need not only a resolution without dissent, but also a development approval. Another trick is that if a lease is granted as a periodic lease (i.e. a lease from month to month) then it will need to be approved as if it were a lease of more than ten years; because it could run for longer than 10 years!
There are some interesting adjudicators decisions relating to granting what is in effect one long term lease (12 years or more) by granting a number of short-term leases (say 4, three-year leases back to back). This technique is often used by crafty Bodies Corporate wanting to generate income from mobile phone towers, without having to pass a resolution without dissent.
While leases can be useful, there are a variety of other alternatives that may better suit. They include a license (as discussed above), an occupation authority or an exclusive use by-law.
Sometimes a lease or license will not be required at all, because a statutory easement is available. For example, a restaurant lot installing a grease trap will only require approval for the installation and not for the grease trap to (permanently) occupy the common property. That is because the grease trap is the subject of a statutory easement, against the common property and in favor of the lot, for utility infrastructure.
Bodies Corporate should always take legal advice in relation to a proposed lease, not only because of the procedural requirements to ensure the lease is properly granted and is enforceable, but also to ensure that the rights and interests of the Body Corporate are properly protected.
This article was contributed by Michael Kleinschmidt, Director – Stratum Legal