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.