A retail or commercial lease is the agreement between a property owner (landlord) and tenant that sets out the rights and responsibilities of each party with respect to use of a commercial property. Leases typically cover a term between 12 months to 25 years. Depending on the nature of the lease and the state of the leased property, different rules and regulations apply. To ensure that the appropriate legislative framework is applied and the interests of both parties are protected, it is important that the correct type of lease is entered into.
Retail Leases
Retail leases apply to business premises less than 1,000 square metres in size that are used for selling and suppling goods and services. Where a business is located in a premises that is retail in nature, such as a shopping centre, a retail lease will apply regardless of the nature of the business. A shopping centre is defined under the Retail Leases Act 1994 (NSW) as a cluster of shops owned by the same person/company, where at least five shops are used for retail business and it is regarded or promoted as a centre, mall, court or arcade. There are a number of retail shops that are not covered by the Act, such as:
- shops larger than 1,000 square metres
- businesses carried on by the lessee on behalf of the lessor
- shops within a cinema, bowling alley or skating rink operated by the person who operates the cinema, bowling alley or skating rink
- premises in an office located above a retail shopping centre
Landlords are subjected to additional obligations under a retail lease, including with respect to disclosure of information, conduct and lease preparation fees. For example, legislation prevents the landlord from charging the tenant for the landlord’s lease preparation and mortgagee consent expenses in a retail lease. However, the cost of registering the lease is usually paid by the tenant. Leases with a term of more than 3 years, including any option period, must be registered.
At least seven days prior to entering into a retail lease, the landlord must provide the tenant with a disclosure statement that summarises the terms of the lease. Disclosure items include, but are not limited to: rent, outgoings, term, renew options, details about the premises itself (address, plan, structures, fixtures, permitted use), services and facilities, car spaces, and additional costs. In some cases, the lessee may terminate the lease within the first 6 months after the lease was entered into if they were not provided with a disclosure statement prior to entering into the lease or if the disclosure statement was incomplete or contained false or misleading information.
The Retail Leases Act 1994 (NSW) also provides protections for both parties with respect to unconscionable conduct and misleading or deceptive conduct that are not necessarily inherent in a commercial lease.
Commercial Leases
Commercial leases apply to premises used for commercial purposes with no retail activity, such as warehouses, industrial sites or offices in commercial buildings. Where businesses provide services, the test as to whether a retail or commercial lease will apply will depend on location. If the business premise is located in a shopping centre, the premise will be considered retail and the Retail Leases Act will apply. If that same business, providing services, is located in a commercial building, then the lease will be commercial.
Unlike retail leases, where the liability of each party is prescribed by legislation, the parties must negotiate these types of provisions in a commercial lease. This is one of the reasons why is it particularly important to seek advice prior to entering into a commercial lease. Additionally, there is no statutory obligation for the landlord to pay the lease preparation costs.
Irrespective of whether the lease you are entering into for your business is retail or commercial in nature, it is essential to seek legal advice prior to signing on the dotted line. Navigating negotiations among parties and the formal requirements of a lease is a complex task. Additionally, registration of leases are now commonly completed online via an ELN (Electronic Lodgement Network). To ensure your interests are protected, whether you are a landlord or tenant, contact us to discuss your leasing matter.