Signing a commercial lease is a significant legal and financial commitment for both landlords and tenants. Before signing, each party should understand the legal relationship they are creating, along with their rights, responsibilities, and financial obligations.
Some commercial leases qualify as retail leases under the Retail Leases Act 1994 (NSW). The Act protects retail tenants, increases transparency during lease negotiations, simplifies leasing processes, and provides access to affordable dispute resolution. It also sets out specific legal requirements that landlords and tenants must follow.
If you are entering a retail lease, an experienced property or commercial lawyer can review, prepare, and negotiate the agreement. Legal advice helps ensure the lease complies with the relevant legislation while protecting your commercial interests.
What is a Retail Lease?
A retail lease generally depends on the type of business operating from the premises and its location, as defined in the Retail Leases Regulation. Businesses that sell goods or services directly to the public from retail premises commonly fall within the Act.
Examples include shops, cafés, restaurants, salons, and many service-based businesses. However, some premises are excluded, including those larger than 1,000 square metres.
Since January 2023, the Act has also covered small bars with a maximum capacity of 120 patrons, gymnasiums, fitness centres, yoga studios, barre studios, Pilates studios, and dance studios.
Most retail leases must run for at least six months but less than 25 years.
A property lawyer can determine whether your proposed lease falls within the scope of the Retail Leases Act.
Landlord Responsibilities Under the Retail Leases Act
Landlords must provide prospective tenants with enough information to make an informed decision about entering or renewing a lease.
Before offering retail premises for lease, the landlord or their agent should provide:
- a copy of the proposed lease;
- a completed disclosure statement; and
- a copy of the NSW Retail Tenant’s Guide, which explains the rights and obligations of landlords and tenants.
Disclosure Statements and Outgoings
The disclosure statement is one of the most important documents in the retail leasing process. It provides key information about the lease, including:
- the premises, amenities, shared facilities, air conditioning, and other included services;
- the lease term and any renewal options;
- the rent, rent review dates, and review methods;
- the tenant’s responsibility for outgoings and estimated costs;
- fit-out, refurbishment, or works requirements;
- relocation clauses, demolition clauses, and planned redevelopment; and
- shopping centre information, including trading hours and neighbouring retailers.
A landlord cannot charge a tenant for an outgoing unless the disclosure statement lists that expense. In most cases, the landlord also cannot recover more than the estimated outgoing unless reasonable grounds supported the original estimate.
The disclosure statement must contain complete and accurate information. If a landlord fails to provide the statement at least seven days before the lease begins, or provides false, misleading, or incomplete information, the tenant may terminate the lease within the first six months.
If the tenant lawfully terminates the lease, they may also claim compensation for reasonable expenses incurred when entering the lease, including eligible fit-out costs.
The landlord must provide the disclosure statement at least seven days before the lease commences. After the lease starts, the parties may agree to amend the disclosure statement, with the agreed changes taking effect under the terms of that agreement.
Lease Preparation Costs and Registration
The landlord must pay the full cost of preparing a retail lease, including any mortgage consent fees. These costs cannot be passed on to the tenant.
Leases lasting longer than three years must be registered. Registration protects the tenant’s legal interest in the property. Although landlords arrange registration, tenants usually pay the government registration fee.
Resolving Retail Leasing Disputes
Retail leasing disputes can arise for many reasons. Unclear lease clauses, unexpected business circumstances, cash flow difficulties, or misunderstandings about legal obligations commonly lead to disagreements.
The New South Wales Civil and Administrative Tribunal (NCAT) can hear retail leasing disputes valued up to the current jurisdictional limit of $750,000.
NCAT may make orders relating to:
- possession of the premises;
- payment of money;
- the return of bond money;
- completion of required works;
- correction of a disclosure statement; or
- confirmation that a disclosure statement was provided where appropriate.
Both landlords and tenants may obtain legal representation during NCAT proceedings.
Get Legal Advice Before Signing a Retail Lease
A retail lease creates significant legal and financial obligations for both landlords and tenants. Obtaining independent legal advice before signing can help you understand your rights, avoid costly disputes, and negotiate fair lease terms.
A property lawyer can explain how the Retail Leases Act applies to your circumstances, identify unfavourable lease provisions, and negotiate practical solutions before the agreement is finalised.
This information is general in nature and should not be relied upon as legal advice. If you need advice about a retail lease or commercial leasing matter, please contact us on (02) 9818 2888 or email [email protected].