this product is unavailable for purchase using a firm account, please log in with a personal account to make this purchase.

LPLC: Look after leases

Every Issue

Cite as: July 2015 89 (7) LIJ, p.72

Implementing simple and effective lease preparation processes can help practitioners avoid a claim.

Leasing matters are complicated for many reasons. A multitude of legislation applies to leasing transactions. Various parties are often involved in negotiating the lease terms. Aspects of the lease are often complicated including clauses dealing with options, rent reviews, payment of outgoings and Personal Property Securities Act 2009 (Cth).

Given how complex leasing matters can be, attention to detail is vital in preparing a lease, especially among junior practitioners and paralegals who are often given the responsibility for the bulk of this work. It is also important for partners and senior lawyers to supervise paralegals and junior lawyers to ensure the client’s instructions are followed.

The LPLC’s updated practice risk guide Looking after leases (http://lplc.com.au/lease/) contains details of many claims involving leases.

The two most common causes for recent lease claims are poor communication and problems arising from a failure to manage the engagement.

Below are examples of claims the LPLC has received.

Communication

A practitioner was instructed to prepare a lease for a restaurant. Pursuant to the lease, the tenant was to provide a security deposit equivalent to six months rent by cash or bank guarantee.

Only when the landlord sought to call on the security deposit did it discover no security deposit was ever paid so started proceedings against the managing agent for failing to obtain the security deposit.

The agent in turn pleaded that the practitioner was a concurrent wrongdoer for failing to obtain it.

The matter eventually settled between the landlord and agent which meant the practitioner was not joined to the proceedings. It is a good example of how easily a misunderstanding can occur in leasing transactions where there are multiple professionals helping the client. It is important to communicate who is responsible to ensure something like a security deposit is obtained.

Engagement management

A junior practitioner acted for a client in the initial purchase of a commercial property. Later the client instructed their letting agent to prepare the REIV form of commercial lease for the property. When the agent had not finalised the lease before the client was due to go overseas, the client instructed the junior practitioner to finalise it.

The instructions were given in the third week of December with only four days before the tenant wanted to take possession. They came via email and phone call and included issues the client wanted negotiated in the lease. When the junior practitioner contacted the tenant’s lawyer, they were told the terms of the lease were already agreed. This was confirmed by the letting agent. Notwithstanding this, the client instructed changes be negotiated.

Over the following four days the client gave further instructions five times via email and phone calls relating to amendments. The last instructions were given late on the final day, Friday 20 December.

The junior practitioner came to work on Monday 23 December to make the amendments to the lease requested by the client. Unfortunately the lease was not sent to the tenant’s lawyer until after 5pm and the junior lawyer received a “closed for Christmas” email. The junior lawyer returned on 30 December, followed up the tenant’s practitioner and rendered a bill to the client. No response was received from the tenant’s practitioner or the client.

The landlord finalised the lease with the tenant directly about a month later.

The practitioner subsequently issued proceedings seeking payment of the outstanding account. The landlord counterclaimed alleging the practitioner was negligent for late delivery of the draft lease, making errors in the lease and giving wrong advice.

The matter eventually settled with no payment to the landlord but with a reduction of approximately 50 per cent in the practitioner’s account.

The junior practitioner should have better managed the retainer with the client and made it clear the outcome the client wanted may not have been possible in the time frame and circumstances of prior negotiations. This client was very demanding and the junior practitioner should have received better support from the supervising partner.

Having an open door policy by itself does not constitute appropriate supervision. Supervision should be proactive and regular. LPLC has a supervision training video and presenter’s workbook in the Risk Management Training Resources section of the website which provides comprehensive material on supervision.

Conduct a word search of “leases” on the LPLC website to find resources about risk management and leases.

Tips
  • Give leasing clients regular updates on the progress of the matter including details of any outstanding issues.
  • Clarify at the outset who will handle any incidental aspects, especially who will collect the security deposit.
  • Actively deal with clients who have unrealistic expectations.
  • Ensure proper training for those handling leasing files.
  • Partners need to ensure they actively supervise junior staff handling lease files.
  • This column is provided by the Legal Practitioners’ Liability Committee. For further information ph 9672 3800 or visit www.lplc.com.au.

    Comments




    Leave message



     
     Security code
     
    LIV Social
    Footer