Signing a commercial lease is a significant legal and financial commitment for both landlords and tenants. It is important for each party to understand the relationship they are entering and the rights and obligations they each have.
Some commercial leases are classified as ‘retail’ and in New South Wales, are governed by the Retail Leases Act 1994. Some of the objectives of the Retail Leases Act include enhancing consumer protection for tenants through increased transparency and communication, simplifying retail leasing processes within the industry, and providing access to low-cost dispute resolution. There are specific requirements regarding the terms of retail leasing arrangements and landlords must provide prospective or continuing tenants with a disclosure statement during leasing negotiations.
An experienced property or commercial lawyer can help to review, prepare, and negotiate the terms of a retail lease and will ensure that the arrangements and agreement are compliant with retail leasing legislation.
What is a retail business?
‘Retail’ leases are generally determined by the nature of the business occupying the premises and its location, but more specifically as detailed in the Retail Leases Regulation. Shops and outlets situated in retail centres and/or that are utilised for selling, hiring, or providing goods and services to the public are generally considered retail businesses. There are exceptions, for example, premises exceeding 1000 square metres.
As of January 2023, small bars (with a maximum patron capacity of 120), gymnasiums, and fitness centres (including yoga, barre, pilates and dance studios) also came under the Retail Leases Act.
A retail lease needs to be for at least six months and less than 25 years.
Your lawyer can advise whether your leasing arrangements fall within the scope of retail leasing legislation.
Landlord’s key requirements for retail leasing
A landlord must provide all information relevant to a prospective tenant’s decision about whether to enter or renew a retail lease.
A copy of the proposed lease and a disclosure statement must be available before the landlord or agent offers to lease retail premises. The lessor or agent should also provide a prospective tenant with a copy of the NSW Retail Tenant’s Guide, which outlines the rights and obligations of retail tenants and landlords and explains certain commercial matters.
Disclosure statements and outgoings
Disclosure statements play a critical role in the retail leasing process. They outline important information about the lease and include details about:
- the premises to be leased, amenities, shared facilities and any other items included such as air conditioning or other services;
- the term of the lease and renewal options;
- the rent payable, rent reviews and the method for calculating reviews;
- the tenant’s liability for outgoings and an estimated cost for those items;
- works, fit-out and refurbishment;
- relocation or demolition clauses and details of any future works planned;
- specific information for shopping centre leases such as trading hours and details of other retail shops, leases, etc.
A landlord cannot require a tenant to pay for an outgoing that has not been included in a disclosure statement. Landlords are also restricted to claiming the estimated amount of an outgoing noted in the disclosure statement in circumstances where the actual cost exceeds the estimated cost, and there are no reasonable grounds for the estimate provided.
The information contained in the disclosure statement must be complete and accurate. A tenant may have the right to terminate the lease within the first six months, if the landlord does not provide a disclosure statement within seven days prior to the lease being entered, or provides a false, misleading, or incomplete disclosure statement. A tenant who validly terminates a lease in these circumstances may have the additional right to claim compensation for expenses reasonably outlaid in entering the lease including recovery of fit-out costs.
The lessor disclosure statement must be provided to a tenant at least seven days before the lease commences. Disclosure statements may be amended by agreement between the parties after the lease has commenced – any changes will be effective as determined in the agreement.
Lease preparation costs and registration
The cost of preparing a retail lease cannot be passed onto a tenant. The landlord must pay the full lease preparation cost as well as any mortgage consent fee.
Leases for a term exceeding three years must be lodged for registration. Registration of the lease helps protect a tenant’s interest and the tenant is typically responsible for paying the registration fee.
Retail leasing disputes
Leasing disputes can arise due to unclear provisions in the lease or agreements that do not contain terms to deal with the many contingencies that can arise during the term of the lease. In other cases, a tenant may face cashflow problems or the parties simply do not understand their rights and responsibilities under the lease agreement.
The New South Wales Civil and Administrative Tribunal (NCAT) has jurisdiction to resolve retail leasing disputes up to the prescribed limit (currently $750,000). The Tribunal can make a range of orders when determining a dispute including:
- possession orders for the premises
- the payment of money
- the return of bond money
- the completion of works
- the rectification of a disclosure statement
- in certain circumstances, an order that a disclosure statement has been provided
The parties to a retail leasing dispute are entitled to legal representation at NCAT.
Conclusion
A lease is a serious financial undertaking for both landlords and tenants who should obtain independent legal advice before entering the lease. Certain arrangements will be governed by the Retail Leases Act which provides additional considerations for a landlord and tenant. A lawyer can ensure compliance with the relevant legislation, identify areas where the lease may be too restrictive or punitive, and may be able to negotiate terms between the parties.
This information is for general purposes only. If you or someone you know wants more information or needs help or advice, please contact us on (02) 9818 2888 or email [email protected].