A retail lease also referred to as a retail, commercial lease, is a legally binding document that sets out the rights and responsibilities of a retail tenant and a landlord, in respect to retail premises. Compared to commercial leases, retail leases have more rules about how the lease works and more protection for tenants.
Each state or territory has its specific retail leasing legislation. There is no single definition of a retail lease. Generally, if property being leased has a shop front, is in a shopping centre and/or is used for primarily selling retail goods and services to the public, then it will be considered a retail lease. However, this must be verified on a case by case basis and it is always a good idea to obtain legal advice as to the application of the retail leases legislation.
Disputes that arise between tenants and landlords from time to time can be resolved through informal negotiation. Mediation and the State Administrative Tribunal can also be avenues to resolve leasing disputes, noting that the lease and the retail leases legislation sets out specific dispute resolution procedures for the state or territory that the retail premises are located in.
Lease clauses should be reviewed and negotiated before signing a retail lease. This includes the terms of the lease and any options to renew, the amount and payment of the rent and any methods to review and increase the rent, as we as the permitted use of the premises and the facilities.
For a new retail lease, both parties must agree and sign off the written lease and the landlord is required to give a copy of the proposed lease and other disclosures required under the Retail Leases Act (disclosure statement) as soon as the lease negotiations start.
The lease should clearly state which party will cover costs incurred in the lease, including costs of preparing the lease, legal fees, outgoings, tax and promotion and advertising. Security bonds, insurance costs and repairs and maintenance costs are also likely to be included. The Retail Leases Act contains provisions to restrict the landlord claiming key money and lease preparation expenses from the tenant. This prohibition often does not extend to amendments as a result of lease negotiations or the costs of the landlord on any subsequent assignment of lease.
Certain lease documents contain restrictions such as types of business activity, prohibition of the offering of certain services and permitted use changes during the lease term. It is essential that, before you sign a lease, you ensure that the premises can be put to the use that you intend and that the lease allows for this.
Rent clauses contain terms on how changes to rent payments can be made, rent reviews, turnover rent (where applicable) and annual increases. Rent can only increase once every 12 months and only in the way specified in the lease (i.e. Consumer Price Index, fixed percentage or review to market).
Insurance obligations include whether or not the landlord insures the property and the tenant’s insurance obligations. The tenant will always require public liability insurance as a minimum requirement.
Q: When does a retail lease start?
A: A retail lease commences on the date specified on the lease after it is signed by both the landlord and the tenant.
Q: What is a registered lease?
A: A registered lease is a lease that is registered on the title of a property. This provides greater security for the tenant.
Q: Who handles security bonds/bank guarantees?
A: A lease will usually state that a tenant must provide a security bond or bank guarantee.
Q: What is an assignment of lease?
A: A lease assignment is a transfer to another party. The lease will contain clauses about whether the assignment is possible and the conditions necessary for an assignment to take place.
Q: Can a landlord refuse assignment?
A: The landlord can refuse assignment on certain limited grounds. However, where retail leases are concerned there are specific matters in the Retails leases Act which govern this and advice should be sought from a lawyer.