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Tenant may have misrepresented nature of business on lease

Discussion in 'Commercial Property' started by Whiteman, 27th Sep, 2016.

  1. Whiteman

    Whiteman Well-Known Member

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    Hi PC'ers

    An issue has come up in the last couple of days and wondering whether anyone may have any experience?

    I signed a QLD commercial lease last week as the landlord on a 1 year lease with a 2 year option.

    Tenant has signed as XXX XXX P/L t/as XXX Health Supplies.

    The property is located in Queensland and is a small retail mall with 4 existing ground floor tenancies and one office above occupied by a professional services company.

    After signing i received a call from one of the tenants about the history of the person that has signed the lease and his history with drug paraphernalia shops and sale/distribution of synthetic drugs. Concerns were raised about the poor fit with existing tenancies and i agree.

    Lease was signed friday and he had workers in there the following business day doing floors so he is moving fast to get in. His old drug paraphernalia shop has on its home page a note saying. "We are closed due to relocating our business - stay tuned for our new shop address ...... blah blah". The banner name of the old shop is clearly about drug smoking/bong shop etc.

    Synthetic drugs have caused deaths and are one step ahead of the law that struggles to keep up with them. Morally i think they are wrong and anybody who sells them puts profits before lives. You want to smoke a joint occasionally go for it, but this synthetic stuff is very different i believe from my basic research.

    I do not have a copy of the lease to hand at the moment but will have a copy later this morning for review, but it is your standard REIQ fill in the blanks retail lease from memory.

    My agent who signed him up has spoken with him and got verbal assurances that he does not intend to sell anything on the drug paraphernalia or synthetic drug line.

    My Issues
    1) I don't believe the store type (if it is drug related) is the right fit for the close knit retail mall with common areas and a front entrance door that is accessed by the common walkway. If it were a a standalone shop in a group of shops i own i probably wouldn't care.
    2) If i get a tenant that is not the right fit in such a retail mall it potentially damages surrounding businesses affecting there ability to accept rent increases, possible vacancies and dragging the tone down of the mall and possibly devaluing due to lower rents. Possible damage $200,000 reduction in value.
    3) If he lied about the nature of his business on the application and subsequent representations, he knows he wouldn't have got in if he had been honest about what he was selling.

    I have not discussed this with my lawyer yet.

    Any thoughts on how to proceed would be much appreciated.

    Regards

    Whiteman
     
  2. LifesGood

    LifesGood Home Building & Development Consultant Business Member

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    That's the business name which is obviously misleading, but is there a section of the contract where they have to describe the nature of the business activity being carried out?
     
  3. Whiteman

    Whiteman Well-Known Member

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    I don't believe so but will have a copy of the lease later today and will review and advise.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you were concerned about the type of business the tenant would run you could have inserted restrictions into the lease. Did you seek legal advice?

    Sounds like you wanting to change the terms of the lease after agreeing. You might have a hard time. You had better seek legal advice asap as the lessor is incurring expenses relating to taking up the shop.
     
    legallyblonde and Propertunity like this.
  5. sanj

    sanj Well-Known Member

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    agreed.

    hopefully an inexpensive but important lesson learnt on not using an off the shelf generic lease, especially for commercial IP
     
    Terry_w likes this.
  6. Whiteman

    Whiteman Well-Known Member

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    I have reviewed the lease and permitted use is "health food shop" and spoken to my lawyer, any alternate use is potentially grounds for "breach of contract".

    Letter is being drafted by lawyer welcoming him and his shop to the mall and respectively reminding him of his obligations under the terms of the lease.
     
    Plutus, g-dub, Luke T and 4 others like this.
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Thats the spirit!
     
  8. Ed Barton

    Ed Barton Well-Known Member

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    A glass of red is good for your health. Many jurisdictions sell marijuana for health reasons. Leeches are good for health. Steroids are good for health. etc etc

    Prove it!

    A letter from a layer scares some, not. Personally, I'd just laugh and through it in the bin.
     
  9. JenW

    JenW Well-Known Member

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    I agree. You need to keep in mind that if this guy is in the business of selling stuff that is only marginally legal, then he has probably seen a few threatening letters before, from government departments and various others. A letter from you might seem like small fry by comparison.
     
    legallyblonde likes this.
  10. jprops

    jprops Well-Known Member

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    I think it is a reasonable first step.
     
    JenW likes this.
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Client owns a small row of shops. One was a fastfood shop and leased out for a food shop who quit his lease. The new lease took over the shop but soon changed it overnight to a tattoo shop. Then it soon was targetted by bikies who shot it up and molotoved front. A clause in contract was used to evict immediately. Cost him a bit in legals for urgent orders etc Bond was used to gut the shop and all fine now (a RE agent) but a lesson learned.
     
  12. JenW

    JenW Well-Known Member

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    Look, I agree. I just wouldn't hold my breath expecting anything to change, that's all.
     
  13. Joynz

    Joynz Well-Known Member

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    None of these are food, though!
     
  14. Scott No Mates

    Scott No Mates Well-Known Member

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    • What sort of dur diligence was undertaken by you/agent/solicitor?
    • Did the agent/you visit or Google their existing business which you're using as their track record?
    • Maybe XXX Health Supplies sells adult products as the name might suggest?
     
    Last edited: 1st Oct, 2016
  15. cheekykoon

    cheekykoon Well-Known Member

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    One guy's food, other guy's leeches... What do you say?
     
  16. JacM

    JacM VIC Buyer's Agent Business Member

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    Do you own all the shops in the mall and will therefore be upsetting all your tenants in the mall, or will your tenant be potentially upsetting other landlords' tenants?