A lease is often a small business’s most valuable asset, and its most expensive liability if it is wrong. Asset Conveyancing prepares and reviews commercial and retail leases for landlords and tenants in South Australia, Victoria, New South Wales, Queensland, Western Australia and Tasmania.
What is the difference between a commercial lease and a retail lease?
A retail lease covers premises used to sell goods or services to the public, such as shops and cafes, and is regulated by retail leasing legislation. Most office, warehouse and industrial leases are governed mainly by their own terms.
Whether a lease is retail depends on each state’s definition, which can turn on use, floor area, shopping centre location and, in some states, rent or the tenant’s status. It matters because retail legislation overrides conflicting lease terms.
Which retail leasing laws apply in each state?
Each state has its own law:
- South Australia: Retail and Commercial Leases Act 1995
- Victoria: Retail Leases Act 2003
- New South Wales: Retail Leases Act 1994
- Queensland: Retail Shop Leases Act 1994
- Western Australia: Commercial Tenancy (Retail Shops) Agreements Act 1985
- Tasmania: Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998
Common themes include mandatory disclosure, limits on rent reviews and recoverable costs, assignment rules and dispute resolution through a state body. Some states also set a minimum term that can only be shortened through a prescribed waiver.
What is a disclosure statement?
A disclosure statement is a document the landlord must give a prospective retail tenant before the lease is entered into. It sets out the rent, outgoings, the tenant’s share of them, any fit-out obligations and other key information.
Timing and form differ by state. If the statement is late, missing or materially wrong, the tenant may be able to withhold outgoings, terminate within a set period or claim compensation, depending on the state. Read it alongside the lease, because the two should match.
What are the key terms to check in a commercial lease?
The terms that cause most disputes are options, rent reviews, outgoings, make good, assignment and security.
Term and options to renew
An option gives the tenant a further term, but only if exercised in writing within the window the lease sets, and usually only if the tenant is not in breach. Miss the window and the option can be lost. In some states, the landlord of a retail lease must remind the tenant before the window closes. Read our guide on options to renew in commercial leases.
Rent reviews
Rent is commonly reviewed by a fixed percentage, CPI or to market. Retail legislation in several states restricts some review methods, such as ratchet clauses that prevent rent going down.
Outgoings
Outgoings are building costs passed on to the tenant, such as rates, insurance and maintenance. The lease should list them and state the tenant’s share. Some states prohibit recovering certain costs, such as land tax, under a retail lease.
Make good
A make good clause sets what the tenant must do when the lease ends, from cleaning to removing the entire fit-out. The cost can be substantial, so record the premises’ condition at the start.
Assignment
Assignment transfers the lease to a new tenant, usually on a business sale, and needs the landlord’s consent. Check whether the outgoing tenant and guarantors stay liable afterwards; retail legislation in several states deals with this. See buying and selling a business.
Guarantees and bank guarantees
Landlords usually require company directors to guarantee the lease personally, and many require a bank guarantee they can call on if the tenant defaults. The lease should say when it is returned and whether it must be topped up after rent increases.
Do you act for landlords and tenants?
Yes. For landlords, we prepare compliant leases and disclosure statements and handle renewals, variations and assignments. For tenants, we review the lease and disclosure statement before you sign and flag terms worth negotiating. If you are buying the premises rather than leasing them, see commercial property conveyancing.
Common questions about commercial leasing
How do I know if my lease is a retail lease?
Check the definition in your state’s retail leasing legislation. It usually turns on how the premises are used, and may also depend on floor area, shopping centre location or rent. Shops, cafes and many service businesses are usually covered; offices and industrial premises usually are not, with exceptions.
What happens if I miss the date to exercise my option?
You may lose the right to renew, leaving the landlord free to refuse or offer different terms. Some states give retail tenants extra protection where the landlord did not send a required reminder. Diarise the exercise window as soon as the lease is signed and exercise in writing as the lease requires.
Can a landlord refuse to let me assign my lease?
A landlord can refuse in the circumstances the lease and legislation allow. For retail leases, most states limit the grounds, such as where the proposed tenant lacks the financial resources or retail skills, or would change the permitted use. For other commercial leases, the lease terms largely decide.
Who pays for preparing a commercial lease?
It depends on the lease and the state. Retail leasing legislation in several states restricts the landlord from passing its lease preparation costs to the tenant. For other commercial leases, the lease or agreement to lease usually decides who pays.