RETAIL LEASE
- The Retails Leases Act 1994 (“the Act”)applies to the leases of retail shops and premises located in a retail shopping centre. It defines a retail shop as a business listed in Schedule 1 of the Act, which includes a wide range of businesses and it’s likely that if you’re engaged in the sale of any goods or services that your business will fall under the Act.
- The Act applies to a lease of premises in a retail shopping centre and defines a retail shopping centre as:
- A group of premises where at least five of the premises are retail shops
- The premises are owned by the same landlord and are,
- Located in one or more buildings usually joined by a common area.
- The Act doesn’t apply to certain retail shops such as retail shops with a square metre area greater than 1000 square metres.
- The Act implies a minimum five-year term to all leases, unless a certificate is executed by a tenant in the presence of a Licensed Conveyancer waiving their entitlement to a minimum five- year term. A minimum five-year term under the Act includes both the term of the lease and the term of the option to renew.
- The Act does not apply to leases that has a term less than six- month.
Disclosure Statement by Lessor before Retail Lease is entered into with Lessee.
Before the Lessor advertise a retail shop for lease, the lessor must have the following:
- A copy of the proposed lease
- A copy of the Retail Tenancy Guide – published by the Department of Fair Trading which sets out the basic obligations of a Lessor and Lessee under the Act.
The lessor is required to give the Lessee a Lessor’s Disclosure Statement at least seven days before the Lessee enters into the lease. The Lessor’s Disclosure Statement sets out the essential terms of the lease and any representations made by the lessor or by the lessor’s agent to the Lessee. If the premises are in a retail shopping centre, details disclosing trading figures and other matters concerning the operation of the centre must be disclosed to the tenant.
If the lessor fails to provide the lessor’s Disclosure Statement, a lessee may terminate the lease within six months of the lease’s commencement.
A Lessee is required to reply to the lessor’s disclosure statement, setting out any additional matters or corrections to the lessor’s understanding of negotiations as set out in the lessor’s Disclosure Statement.
Security Bonds and Security Deposits:
The bond is usually for an amount that is equivalent to up to six month’s rent but in most cases is three (3) month’s rent. The bond can be provided in the form of a bank guarantee or cash deposit. A cash bond must be deposited with the Retail Tenancy Unit for the term of the lease. You don’t earn interest on this money.
Fit out Costs:
Generally speaking it is Lessee who pays the cost of installing shop fixtures, finishes, fittings and equipment. When the lease expires, the Lessee, unless agreed otherwise by the Lessor, must remove the fit-out and return the shop to the condition it was in before the lease began.
A contribution to the fit-out cost may be negotiated with the lessor. This contribution may be payable as an upfront lump sum amount before the lease begins, or via regular instalments.
Rent Reviews:
There are restrictions on the method and rate of rent reviews for retail leases. Generally, the base rent may only be adjusted on each anniversary of the lease.
Outgoings
Outgoings are usually charged by a Lessor in addition to the rent. However, the rent negotiated can be inclusive of outgoings. Outgoings must directly apply to the premises and include water rates, council rates, insurance and land tax. Under the Act, non-specific outgoings include, expenses such as cleaning services or plant and equipment provided by a landlord in a retail shopping centre. These must be calculated according to the proportion of the net lettable area occupied by the tenant over the total net lettable area of the shopping centre.
Option to Renew
An option to renew is a right of a tenant to enter into a lease on the same terms as the original lease and for the length of time specified in the option. To be entitled to exercise the option, the Tenant should not be in breach of the Lease. i.e., the all the money payable by the tenants must be paid and all other obligations under the lease by the tenant should be met.
The option must be exercised during the option exercise period specified in the lease. JP Conveyancing Associates will put the important period of date which may enable the tenant to validly exercise the option in our after-settlement package. This is usually a period of between three to six months from the termination date of the lease.
Relocation
The Act sets out the procedure if a landlord wishes to relocate a tenant in order to refurbish or redevelop a retail shopping centre.
The landlord must:
- Demonstrate there is a genuine proposal for the work to be performed within a reasonable time;
- Provide the tenant three months’ notice of the relocation date;
- Offer the tenant alternative premises on comparable terms of lease; and
- Pay the tenant’s reasonable relocation costs.
The tenant may terminate the lease within one month of receiving a relocation notice. If the tenant does not terminate the lease within this period, the tenant is deemed to have accepted the relocation offer.
Demolition
A landlord may include a demolition clause in a lease. The Act sets out the procedure if a landlord proposes to terminate a lease for the purposes of demolishing the premises.
The landlord must:
- Demonstrate there is genuine proposal for work to be performed within a reasonable time;
- Give tenants a minimum of six months’ notice of termination;
- Compensate the tenant for any up-front fit-out costs the tenant has incurred.
A tenant may insure against the loss and disturbance such an occurrence would cause to the tenant’s business.
Damages to Premises:
If a retail shop is damaged and the damage is not due to any fault of the tenant, the tenant is not liable to pay rent or outgoings if the tenant is unable to use the premises.
If the damage only affects part of the premises, the rent and outgoings are reduced in proportion to the area damaged or unable to be used as against the total lettable area of the premises.
The tenant can serve a notice on the landlord requesting the landlord repair the damage within a reasonable time. If the landlord notifies the tenant that it considers repair of the damage not practicable or undesirable, the tenant may terminate the lease on seven days’ notice. No compensation is payable by either party should this occur.
Assignment of Lease:
The tenant may wish to assign a lease to another person during the lease’s term for some reasons.
The landlord may not unreasonably withhold consent to an assignment of a retail shop lease. The landlord has the right to withhold consent if:
- The proposed assignee seeks to change the retail shop’s use;
- The proposed assignee has financial resources or retail skills inferior to those of the tenant;
- The tenant hasn’t complied with the requirements set out in the Act for seeking the landlord’s consent.
These are just some of the matters affecting assignment of a retail leases. Please be aware that this information is intended for general information purposes.