Retail leases are more complicated than residential leases because, in New South Wales (and the other Australian states), they fall under a highly regulated area of the law.
You also need to be aware that, if you are a tenant, entering into a retail lease is a serious financial commitment.
As a landlord, you need to make sure the lease helps you protect your investment.
Consequently, before you sign a lease or enter into possession of a building, you should seek legal advice to make sure:
- you understand your rights and obligations under the terms of the lease
- you can comply with the terms of the lease
- you negotiate carefully any terms that do not fit with your business objectives
- the lease states what was agreed between you and the landlord/tenant in any discussions about the lease.
What is the difference between a retail lease and a commercial lease?
The Retail Leases Act 1994 (NSW) sets out the legal arrangements between landlords and tenants for shops selling and supplying goods and services, where the shop is less than 1,000 square metres and is used for a retail business.
As we’ve already pointed out, retail leases are more highly regulated than commercial leases and, as a result, there are more rules regulating the way in which retail leases work.
How does Monardo Solicitors approach retail leases?
Are you a tenant considering signing a retail lease?
At Monardo Solicitors, we can advise you at all stages of the leasing process and ensure that you are alerted to any potential pitfalls.
Stage One: Before you sign a retail lease
We can advise you on the terms of your lease and help you negotiate them with the landlord.
This process will involve:
- examining the financial implications of signing the lease
- checking with the local council to see if you need written consent for the type of business you plan to run
- discussing the terms of the lease
- ensuring that the chances of disputes with the landlord are minimised.
Stage Two: Dealing with disputes
If you end up in a dispute with your landlord, we can assist by providing you with a professional assessment of the strengths and weaknesses of your case.
As experienced litigators, we always try to resolve such disputes through negotiation or mediation. However, if you do end up in court, you will know that you are in competent hands.
Stage Three: End of the lease and options
We can advise you on the steps you can take if your lease is running out. If you have an option to extend the lease, we can assist you to exercise that option. You need to bear in mind that you could run into trouble if you exercise the option late or incorrectly.
We can also advise you on other issues that may emerge at the end of a lease, such as the:
- determination of market rent
- ‘making good’ requirements (i.e. your obligations to return the premises in the same condition they were in at the start of the lease, taking into account fair wear and tear).
Stage Four: Transferring the retail lease when you sell the business
When you come to sell your business and you need to assign your lease, we can ensure that the process is undertaken correctly and that you follow the process set out in the Retail Leases Act 1994.
Are you a landlord looking to sign a retail lease?
At Monardo Solicitors, we are experienced in advising landlords on retail leases. We can help you not only negotiate with your prospective tenant, to ensure that your investment is protected, but draft a lease that covers all the key issues.
Are you about to lease a retail property? Would you like the assistance of a lawyer with experience in retail leases? Call 02 8006 5244.
Retail Leases FAQs
When does a retail lease start?
A retail lease starts when the lease is signed, the tenant starts to pay rent or when they take possession of the shop (whichever occurs first).
What kinds of shops are covered by the Retail Leases Act 1994 NSW?
Most types of shops or retail operations are covered by the Retail Leases Act 1994.
However, certain kinds of retail shops are not covered by the legislation (such as shops with a lettable area of 1,000 square metres or more, and leases with a term of 25 years or more).
What is a disclosure statement?
Under the Retail Leases Act 1994, a landlord is required to provide a tenant with a lessor’s disclosure statement about the terms of the lease and the retail lease premises, together with a Retail Tenant’s Guide, no later than seven days before the lease begins.
If you are a tenant and were not provided with a lessor’s disclosure statement, or there is a serious misrepresentation contained in the lessor’s disclosure statement, you may have the right to terminate the lease within the first six months, by giving notice in writing to the landlord.
What is a tenant’s disclosure statement?
A tenant is required to give a lessee’s disclosure statement to the landlord within a certain time after receiving a lessor’s disclosure statement.
What is the minimum period for a retail lease in NSW?
Under the Retail Leases Act 1994, a retail least must be for a minimum of five years.
In certain circumstances, a tenant may, under section 16 of the legislation, waive the minimum period in favour of a lesser term, by presenting the landlord with a certificate.
What is ‘key money’? Is a landlord entitled to ‘key money’?
Under the Retail Leases Act 1994, key money is defined as a ‘premium, non-repayable bond or otherwise … or any benefit in connection with thee granting, renewal, extension or assignment of a lease.’
The legislation prohibits landlords of retail leases from asking for or accepting key money. As a result, contract or lease terms that specify the payment of key money by you to the landlord are void.
Can a landlord ask for a bond or bank guarantee?
Yes, under the Retail Leases Act 1994, a landlord is within their rights to ask a tenant for a bond or a bank guarantee.
A bond is a security held by the landlord in case of unpaid money or unperformed obligations during or at the end of the lease.
A bank guarantee is often provided as an alternative security to a cash bond. Banks issue bank guarantees, under which they guarantee a landlord that a tenant will perform according to the terms of the lease. Usually, if the landlord requests the issuing bank to pay money under the guarantee, then the bank must do so, regardless of the merits of the landlord’s claims.
Under a retail lease, can a landlord be given the right to relocate a tenant’s premises or terminate the lease early?
Under the Retail Leases Act 1994, a retail lease may contain a relocation clause, provided the landlord gives you at least three months’ notice, in writing, of the move. The landlord is obliged to pay the reasonable cost of your relocation.
The legislation also permits a retail lease to contain a demolition clause, enabling the landlord to end the retail lease if they require the shop to be vacated for the works. The landlord must give at least six months’ notice that the lease will need to be terminated because of demolition. During the six-month notice period, you can end the lease with seven days’ written notice.
The is always a risk that landlords exercising their rights under a relocation clause will lead to substantial financial loss for a tenant. As a result, you should not sign a lease containing such clauses without seeking both legal and financial advice.
Can a landlord refuse permission to assign a lease?
A landlord can insist that their prior consent is required for you to assign a lease.
However, a landlord is accorded only very limited grounds on which to refuse such consent, provided you comply with the procedures set out in the Retail Leases Act 1994 for applying for the landlord’s consent.
What is an option to renew a retail lease?
It can be a good idea to ensure that you have an option to renew your retail lease on expiry of the existing term.
If you have an option to renew, the landlord will be obliged to provide you with a new lease on the terms required by the option.
If you don’t have an option, then the landlord is not required to offer you a new retail lease, nor are you required to accept a new retail lease.