It is common to see tenants wanting to undertake various works on common property particularly in a commercial setting. However, the owners corporation may be reluctant to authorise a tenant to undertake works to the common property for reasons including the ongoing repair and maintenance obligations.
Yet, to get around this situation, a tenant may consider the following options:
- Liaise with the landlord ( i.e. owner of the lot) to obtain a by-law authorising the proposed works that the tenant would like to undertake; or
- The owners corporation may enter into a licence agreement with the tenant directly.
Provided that the landlord agrees to obtain a by-law authorising the works under section 108 of the Strata Schemes Management Act 2015, the owners corporation will generally expect conditions, such as, the lot owner being responsible for the ongoing repair and maintenance of the works, be addressed in the by-law. These obligations would usually be passed over to the tenant as part of the tenancy agreement between the landlord and the tenant.
The by-law option is arguably the most straightforward approach to get approval from the owners corporation if a tenant wishes to undertake works on common property.
What if the landlord does not agree to a by-law?
In the event that the landlord does not agree to be held responsible for a tenant’s work for any reasons, the tenant may consider entering into a licence agreement with the owners corporation. This will ultimately allow the tenant to achieve the same outcome without involving the owner. Although, it remains a matter for the owners corporation to whether they are willing to enter into such agreement with the tenant.
Content of a licence agreement
The common provisions stipulated in these licence agreement include:
- Bond clause-which requires the tenant to pay a bond to the owners corporation and entitles the owners corporation to make a claim against the bond money in events such as the tenant fails to remove works installed on common property at the end of the licence period;
- Licence fee under the licence agreement payable by the tenant;
- The tenant’s obligations under the licence agreement including not to install anything else in the licensed premises that affects the common property other than the works stipulated in the licence agreement; and
- Indemnity clause- which requires the tenant to indemnify the owners corporation against any liability or loss arising from the works on common property.
It is very important to carry out a thorough review of the licence agreement to ensure that the negotiation between the parties are mirrored in the contractual document. In particular, a tenant should carefully consider the scope set out in the indemnity clause to mitigate exposure of risks.
We have considerable experience in assisting tenants and landlords on these issues and are available to provide more specific and detailed advice to the circumstance.
Prepared by Bannermans Lawyers