Deed of Lease in addition to the Agreement

[Merlot Mike]

Hi all, really been enjoying reading all of the informative posts on the site.

I've just purchased a small industrial property 150m2.

I have a potential tenant who is asking if I will be requiring a Deed of Lease in addition to the Agreement. My lawyer insists that it is necessary for my protection (ie. guarantee of income etc) but the agent is adamant that sort of thing in included in an Agreement and a deed is just more $$ for the lawyers. The value of the lease is less than $20k per annum. Any thoughts?

[Orkibi]

I have a potential tenant who is asking if I will be requiring a Deed of Lease in addition to the Agreement.

What agreement you referring to?? Agreement to Lease?

[Merlot Mike]

Yep Agreement to Lease

[Orkibi]

Yes you need full lease.
This could follow to the agreement to lease after the tenant settled in.
We just did exactly that. Had agreement to lease signed up 11 month ago and now signed the full lease. Extra cost $500.

As per the agreement to lease the tenant shared 50% of the cost to put on full lease so we paid only $250.

Unless you want to be slack you should so full lease as well

[Merlot Mike]

Thanks for your input, i think a Deed is the way to go.

[Wayne]

What extra does the Deed of Lease offer the Agreement to Lease - legally?

I remember another thread here on the same topic many moons ago where the advice was to not worry about the DoL for under around $50k or something.

[Merlot Mike]

I had a look at that. My leasing agent reckons he's leased 200 properties and only 10% put a deed in place. The plot thickens...

[Orkibi]

You can call me pedantic then... After all we are dealing with more the $1 worth of real estate.

[Merlot Mike]

The thing with agents is that you have to take what they say with a grain or two of salt

[Davo36]

I don't see any benefit to a Deed of Lease for such a small tenancy Merlot Mike.

If they bugger off owing money, you're still in the same situation really.

Best thing to have is a personal guarantee IMHO.

[Lovethiscountry]

I have five tenants in premises on Agreements to Lease. All for less than 20k pa.

After high legal costs and poor results trying to get money out of bad tenants on ADLS leases I'm now more selective who I lease to and it helps to get a statement of their financial position and check it out. Three out of five own their own home and they are all in easy to lease locations. We both save on legal costs and some pay two months rent in advance.

There are many forms of Agreement to Lease forms, ADLS (and different versions.) Some real estate firms have their own etc. A personal guarantee is important from someone with assets to back it up and good to have a witness to them signing.

Took one to court who tried to claim it wasn't valid and won the case but still wound up out of pocket when you take into account your time and costs.

[Merlot Mike]

Hi Davo, that's interesting to hear. How big would the lease need to get before you would go for the Deed and what specific benefits would the Deed provide in that situation?

[Merlot Mike]

Hi lovethiscountry, are you saying that having had them sign a Deed would have been beneficial in court? Or that credit checks etc are far more important than worrying about Agreements vs Deeds?

[Lovethiscountry]

ADLS Agreement of Lease is a legal binding document.

With small leases, in money terms, I trust my gut feeling and ask myself if I want them in the premises. It's important they have sufficient assets if they are going to go as guarantor.

What is even more important is if they do a runner the premises need be easily release.
In an ideal world the tenant wants to be in the premises and the lessor wants them there too.

If they do a runner I likely would just not take them to court as its not worth the cost and my time is better spent finding the next property to buy.

[Wayne]

You can call me pedantic then... After all we are dealing with more the $1 worth of real estate.

No - we are dealing with a rental.
I don't think the DoL would protect the property, it protects the lease.