Receivers

This booklet focuses on receivers in New South Wales, Australia and information particularly relevant to them. 

What Constitutes a Receiver?

 A receiver is not a direct landlord or owner of a property. A receiver is appointed by creditors or the court to take charge of the affairs of a business, usually when the business has run into serious financial difficulty.

The receiver’s role is to sell assets from the business on behalf of the financing bank. This situation often creates a property vacancy whilst the receiver is looking for a buyer, or is in the process of liquidating the property and other assets. This is particularly the case where the business under receivership was itself the occupier of the premises in question.

Such a short-term vacancy can create an ideal opportunity for an empty space project.

What Receivers Want

A receiver’s primary interest will be that of the appointing bank. Their primary objective is to sell the property for the best price possible in a short period of time in order to repay any outstanding loans.

As a general rule receivers will greatly prefer to have a tenant in the premises while they attempt to sell them for two reasons:

  1. To obtain rental income from the premises while they are being sold; and
  2. To maintain, or even grow, foot traffic to the premises, thus increasing its sale value.

The sale process is conducted as swiftly as practicable however, and receivers may also be reluctant to have tenants in place with long term leases as it can limit the market for the property. Many tenants will be unwilling to make use of the premises for such a short period of time, with little security of tenancy. This is the perfect opportunity for an empty space project.

It should be noted however, that at times receivers may actually prefer to have tenants in place with long term leases as it can add value to the property for certain purchasers – this must be assessed on a case-by-case basis, and can often be determined simply by asking the receiver.

Receivers will also often be interested in such factors as:

  • Reducing property management costs
  • Increasing footfall to their property as a whole
  • Maintaining occupancy of premises
  • Reducing security risks and hazards such as vandalism and squatting
  • Obtaining and retaining tenants who comply with contractual agreements
  • Obtaining tenants who deal with products and services suitable to the property, location etc
  • Obtaining and maintaining tenants that meet presentation requirements and standards
  • Increasing the appeal of their premises to tenants seeking long-term leases.

What Concerns Receivers

Receivers typically have a number of concerns when dealing with empty space projects. These include:

  • Ensuring tenants vacate the premises on time once the tenancy agreement has expired  
  • Ensuring there are no unauthorised modifications to the property by the tenant
  • Ensuring tenants maintain presentation standards and requirements
  • Ensuring any valuation of the premises is not negatively impacted
  • Minimising public liability, injuries and accidents
  • Minimising property damage, in particular caused by misuse
  • Minimising defit costs, that is, the cost of taking out all fixtures and fittings within the premises and returning it to its original standard.
  • Minimising unnecessary maintenance to the property
  • Minimising disruption to other tenants
  • Retaining control of the premises by ensuring it is only used for approved purposes and for the approved period of time.

These concerns can be addressed in a number of ways. Again, by understanding them you can tailor your communications with receivers to make it clear that your proposed tenancy will not trigger any of the concerns.

We also set out below some means in which to address these concerns. If financially possible, it is also recommended that a security deposit be provided to the receiver in the form of a bank guarantee. Having this money to call on (if necessary), will allay many of the above concerns.

Ensuring tenants vacate the premises on time once the tenancy agreement has expired

The Licence Agreement developed by the Arts Law Centre and recommended in the Legal and Leasing section of this Booklet sets out clearly the process for ending a tenancy. For a tenant to remain in the premises once the Licence Agreement has expired would constitute trespass, and there are strict legal sanctions against trespass and the illegal use of property.

Ensuring there are no unauthorised modifications to the property by the tenant

The Licence Agreement also clearly sets out any permitted modifications to the premises.

Ensuring any valuation of the premises is not negatively impacted

This is less likely to be of concern to receivers than to other types of landlords. When premises are valued by a professional valuer (often on behalf of a mortgagee bank), the valuation given to the premises is often largely based on the rental income from its tenancy(s). As the rental income from empty space projects is typically minimal, receivers may be concerned that this will negatively affect the premises valuation.

It may seem counter-intuitive, but in this situation empty premises may be valued higher than occupied premises. For empty premises a rental income will be approximated from similar premises, however if there is a tenant in the premises paying low rent, then that may be assumed to be what the premises are worth.

The use of a Licence Agreement negates this concern, as its short-term nature makes it clear it is only an interim use of the premises. Further, in the event that there is a valuation coming up, the short notice period of the Licence Agreement makes it simple to ensure the premises are vacant if necessary.

Ensuring tenants maintain presentation standards and requirements

While the Licence Agreement restricts the tenant from doing anything which is “noxious, offensive, audibly or visually a nuisance or which interferes with the use of any neighbouring properties”, this concern is one which may be best addressed through choosing the right tenant for each premises, and justifying this choice to the landlord. References regarding the tenant may be of assistance in this.

Minimizing public liability, injuries and accidents

The Licence Agreement specifies that adequate insurance must be maintained to address this issue.

Minimise property damage, in particular caused by misuse

The Licence Agreement sets out the permitted use for the premises, however this is again a concern which may be best addressed through choosing the right tenant for each premises, and justifying this choice to the landlord.

Minimising unnecessary maintenance to the property

It is highly recommended that you provide a plan or schedule for the cleaning and maintenance exercises that will be undertaken on the premises over the course of the licence period.

Minimizing disruption to other tenants

As set out above, the Licence Agreement restricts the tenant from doing anything which is “noxious, offensive, audibly or visually a nuisance or which interferes with the use of any neighbouring properties”.

It may also assist to provide a plan and/or schedule of all potentially disruptive activities which will be taking place in the premises.

Retaining control of the premises

On of the benefits of using the recommended Licence Agreement is that it ensures the landlord at all times retains full control and ownership of the premises, within the specified limits.

Factors of Success

There are a number of factors that other empty space projects have demonstrated to increase the likelihood of success when dealing with receivers. These include:

 

  • Honesty, confidence, preparation and professionalism
  • Strength of relationship and trust between empty space project co-ordinator and receiver
  • Where possible, direct communication with the receiver bypassing any real estate agent
  • Goodwill and support from any real estate agent involved
  • Council or local authority support
  • Having access to proper legal information
  • A background in, or an understanding of, property management
  • Being able to provide evidence of reliability/responsibility – for example through positive references
  • Being able to tangibly demonstrate the success of other tenancies, or the potential success of this tenancy
  • The possession of negotiation skills
  • An introduction through other receivers to immediately build credibility
  • Access to funds and resources – this may be used as bargaining tool e.g. cosmetic improvements on property
  • Providing assurances of safety, security, and timely exit
  • A focussed, targeted, and consistent approach with receivers likely to participate in the program
  • Inviting receivers to relevant events to foster greater interest

Legal and Leasing Information

When approaching receivers from a legal perspective, it is important to understand that

  1. All receivers will have legal concerns regarding empty spaces projects; and
  2. Most receivers will have a way they typically lease out their premises, and many will be reluctant to change this

A goal should therefore be to understand and be able to communicate to the receiver:

  1. What works from a legal perspective for empty spaces; and
  2. Why this method is of benefit to the receiver as well as the tenant.

It is also important to understand that the information provided here is relevant only to New South Wales, is of a general nature, and does not constitute nor should be relied on as legal advice. If you have specific questions it is important to speak to a qualified lawyer. The Arts Law Centre of Australia may also be able to assist in this.

Legal Information You Should Have When Approaching Receivers

The better informed you are about legal issues when approaching receivers the better. As an absolute minimum, you should:

  • Have a legal structure to recommend to them
  • Be able to explain why your recommended structure is effective for both parties
  • Understand and be able to address the landlord’s likely major concerns.

It is also beneficial to review the 'Creative Enterprise Hubs NSW' information available online through the Arts Law Centre of Australia.

If a landlord has specific questions that you cannot answer, do not let this concern you. This is commonplace, even among lawyers. Simply take the question under consideration, and revert to the landlord and once you have obtained the appropriate legal advice.

What Legal Structure To Use

The recommended model for empty space projects in NSW is a Licence Agreement.  A Licence Agreement is superior to a Lease in this situation as:

  • They are quicker, easier, and generally cheaper to put in place
  • They have less legal requirements for their implementation
  • They are more flexible than Leases
  • They work better for short-term tenancies
  • They are less likely to trigger the Retail Leases Act 1994 (NSW)

A template Licence Agreement has been developed by the Arts Law Centre of Australia, which grants your administering body the right to use the premises for a period of 30 days for an agreed purpose.

This 30 day period is likely to be particularly effective, as it grants the landlord the security of knowing they can have their premises back at any time on 30 days notice. It also grants the tenant the security of knowing that unless they have received a notice they have at least 30 days remaining in those premises.

It must be noted however, that the 30 day period may be replaced with any length of time up to 6 months. A single period of 6 months or more, however, will risk triggering the Retail Leases Act 1994 (NSW), as set out below, and should be avoided.

The Licence Agreement also: 

  • Sets out any alterations that may be made to the premises without the consent of the landlord;
  • Puts in place notification procedures in the event of any damage;
  • Makes clear the exact nature of the relationship between the landlord and the tenant
  • Sets out all fees and monies payable to the landlord during the term of the Licence
  • Sets out both the landlords and the licensee’s rights and obligations
  • Sets out the process to be followed in the event of any dispute between the parties

A major concern of corporate landlords is likely to be the Retail Leases Act 1994 (NSW) (Act). If this Act is triggered it can automatically grant long term leases to tenants. Further, once the Act is triggered, it cannot be contracted out of. That is, it will apply regardless of any agreement between the parties.

Three key triggers of the Act are:

  1. When the Permitted Use listed in a Licence Agreement is any type of retail activity. This trigger is very broad. The term ‘retail’ is extremely encompassing under the Act, and covers a wide range of businesses and activities, including, for example, art galleries and arts and craft shops. The list of uses defined as “retail” may be found at:http://www.austlii.edu.au/au/legis/nsw/consol_act/rla1994135/sch1.html
  2. Whenever a tenant is in possession of the premises for a single agreed term of 6 consecutive months or more; and
  3. Whenever a tenant is in possession of the premises for a period of 12 consecutive months or more, even if that time of made up of several shorter agreed terms.

To avoid triggering the Act, it is therefore highly recommended the following steps are followed:

  1. The Permitted Use in the Licence Agreements be listed as “For sub-licencing to program participants”, or similar. Alternatively, a use may be specified that expressly avoids any type of retail activity.
  2. Do not allow any single Licence Agreement of more than 5 months;
  3. Do not allow any consecutive Licence Agreements to add up to more than 10 months in possession of the premises.

While it is recommended to follow all of the above three steps if possible, if you follow either just the first step, or just the second and third steps, it will be sufficient to avoid triggering the Act.

While the above Licence Agreement arrangement is the generally recommended format for empty space projects in NSW, there will be instances where an ongoing tenancy longer than 12 months is the desire of both parties, or where the landlords insists on a different legal structure, or where for another reason a Licence Agreement is not possible. In these situations it is again very important to speak to a qualified lawyer and obtain specific expert advice. As set out above, The Arts Law Centre of Australia may be able to assist in this.

Participation Agreements for Tenants

While not directly related to communicating with landlords, it is also important to have the correct legal agreements in place with the tenants you place in premises.

The existence of such an agreement is likely to be a concern to corporate landlords.

The Arts Law Centre of Australia provides a template of a Participation Agreement and it is highly recommended that it or a similar agreement be put in place.

Insurance

It is also very important to obtain adequate insurance coverage, particularly public liability insurance, and also to encourage tenants to obtain their own insurance policies.

Adequate insurance is specified under the Licence Agreement, and it is also highly likely that corporate landlords will require that adequate insurance is in place.

Types of insurance that may be relevant include:

  • Public liability insurance: Covers damage caused to a member of the public or their property
  • Product liability insurance: covers damage caused by faulty products
  • Workers compensation insurance: Covers injury or harm to an employee while they are at work
  • Professional indemnity insurance: Covers damage caused to a person as a result of their professional activity
  • Property (building and contents) insurance: Covers damage to the insured premises, and to its contents
  • Volunteer insurance: Covers damage caused to a volunteer in the course of their activities as a volunteer

The majority of these insurances are not difficult or expensive to put in place. Further information on insurance can be found in the Arts Law Centre's 'Creative Enterprise Hubs NSW Information Sheets'.