ACT Leasing 101 – Section 111 Certificates
So, you are a tenant and think you have found the perfect property in a shopping centre to lease. You have successfully negotiated commercial terms, and it is time to formalise the arrangement. When you receive the documents, you will likely also receive something called a Section 111 Certificate.
So, what is this certificate about?
Properties in shopping centres are dealt with a little bit differently under the Leases (Commercial and Retail) Act 2001, particularly when it comes to lease renewal. Section 108 of the Act provides that where a lease for a premises in a shopping centre is about to expire, or has expired, and the current tenant wants to renew or extend their lease, the landlord must give the current tenant first preference over any other possible tenants. The landlord is also required to assume that the current tenant will want to renew or extend their lease – and so must afford them this first preference – unless the current tenant has notified the landlord in writing to the contrary at least 12 months before the end of the lease term.
Where this preference is in play, the landlord may only offer a lease for the premises to someone other than the current tenant if it would be substantially more advantageous to the landlord than renewing or extending the lease with the current tenant. For example, the new tenant proposes to pay a significantly higher rent.
The landlord is also not obliged to honour this right of preference where:
- the landlord genuinely wants to change the tenancy mix within the shopping centre;
- the tenant has substantially or persistently breached their current lease; or
- the landlord does not propose to release the premises for at least 6 months after the end of the lease term, and that the landlord requires the premises remain vacant during that period for the landlord’s own purposes.
However, where the tenant has obtained legal advice confirming their rights under section 108 of the Act, the tenant may agree to waive this right of preference. This is done by the tenant’s lawyer signing what is called a ‘Section 111 Certificate’, in which the lawyer confirms that they have advised the tenant of the rights granted under Section 108 and the tenant has agreed that:
- the effect and preferential right to the tenant given under Section 108 has been explained to them by an independent lawyer;
- the tenant understands that if the lawyer signs the certificate, the tenant is giving up the preferential right that it would have had if the lawyer had not signed the certificate; and
- the tenant was not acting under coercion or undue influence when it asked or agreed to the independent lawyer signing the certificate.
So, it is voluntary then?
Yes and no. Strictly speaking a landlord cannot force a tenant to waive their right of preference under section 108 (hence the reference at the end of the certificate where the tenant is required to confirm that they were not being coerced or forced to agree). However, it is also near universally required by all shopping centre landlords that this right of preference be waived. Quite simply, landlords will often simply refuse to grant a lease for a premises in a shopping centre where this right has not been waived as they want to retain maximum control over the shopping centre and its tenancy mix.
As a result, it is often the case that where a tenant wants to lease a premises in a shopping centre, the tenant practically has little option but to ‘voluntarily’ waive this right of preference.
If you have further questions or are uncertain about any aspect of your lease, please contact us, we are here to help.