Exploring Retail Leases in New South Wales: An Overview

Introduction

For both a tenant and a landlord, signing and entering into a commercial lease is a significant financial and legal commitment.

As a result, it is integral that each party understands the rights and obligations they have in this relationship.

It is worth noting that there are some instances where commercial leases may be classified as a retail lease and be governed by the Retail Leases Act 1994.

The Retail Leases Act 1994 aims to enhance consumer protection for tenants through increased transparency and communication, simplify the retail lease process ad provide access to low-cost dispute resolution between landlords and tenants.

In addition to these objectives, the Retail Leases Act 1994 also details the specific requirements for a retail lease, including the terms of a retail lease and that a landlord must provide prospective or continuing tenants with a disclosure statement during leasing negotiations.

When entering into a lease, an experienced property or commercial lawyer can help you by reviewing, preparing, and negotiating the terms of a retail lease and ensuring that the arrangements and agreement are compliant with retail leasing legislation.

An experienced property or commercial lawyer can also assist by providing you with advice on your obligations under the lease.

What is a retail business?

‘Retail’ leases are generally determined by the nature of the business occupying the premises and its location, but more specifically as detailed in the Retail Leases Regulation.

Shops and outlets situated in retail centres and/or that are utilised for selling, hiring, or providing goods and services to the public are generally considered retail businesses.

There are exceptions, such as where premises exceed 1000 square metres.

As of January 2023, small bars (with a maximum patron capacity of 120 people), gymnasiums, and fitness centres (including yoga, barre, pilates and dance studios) also fall under the Retail Leases Act.

A retail lease needs to be for at least six months but be for a term of less than 25 years.

Your lawyer can advise whether your leasing arrangements fall within the scope of retail leasing legislation.

Landlord’s key requirements for retail leasing

A landlord must provide all information relevant to a prospective tenant’s decision about whether to enter or renew a retail lease. This is done with a Retail Lease Disclosure Statement.

A copy of the proposed lease and a disclosure statement must be available before the landlord or agent offers to lease retail premises.

The lessor or agent should also provide a prospective tenant with a copy of the NSW Retail Tenant’s Guide, which outlines the rights and obligations of retail tenants and landlords and explains certain commercial matters.

Disclosure statements and outgoings

Disclosure statements play a critical role in the retail leasing process. They outline important information about the lease and include details about:

• the premises to be leased, amenities, shared facilities and any other items included in the premises such as air conditioning or other services;
• the term of the lease and renewal options;
• the rent payable, rent reviews and the method for calculating reviews;
• the tenant’s liability for outgoings and an estimated cost for those items;
• works, fit-out and refurbishment;
• relocation or demolition clauses and details of any future works planned; and
• specific information for shopping centre leases such as trading hours and details of other retail shops, leases, etc.

A landlord cannot require a tenant to pay for an outgoing that has not been included in a disclosure statement.

Landlords are also restricted to claiming the estimated amount of an outgoing noted in the disclosure statement in circumstances where the actual cost exceeds the estimated cost, and there are no reasonable grounds for the estimate provided.

The information contained in the disclosure statement must be complete and accurate.

A tenant may have the right to terminate the lease within the first six months, if the landlord does not provide a disclosure statement within seven days prior to the lease commencing, or where a false, misleading, or incomplete disclosure statement has been provided.

A tenant who validly terminates a lease in these circumstances may have the additional right to claim compensation for expenses reasonably outlaid in entering the lease including recovery of fit-out costs.

Disclosure statements may be amended by agreement between the parties after the lease has commenced with any changes becoming effective as determined in the agreement.

Lease preparation costs and registration

The cost of preparing a retail lease cannot be passed onto a tenant. The landlord must pay the full lease preparation cost as well as any mortgage consent fee.

Leases for a term exceeding three years must be lodged for registration. Registration of the lease helps protect a tenant’s interest and the tenant is typically responsible for paying the registration fee.

Retail leasing disputes

Leasing disputes can arise due to unclear provisions in the lease or agreements that do not contain terms to deal with the many contingencies that can arise during the term of the lease.

In other cases, a tenant may face cashflow problems or the parties simply do not understand their rights and responsibilities under the lease agreement.

The New South Wales Civil and Administrative Tribunal (NCAT) has jurisdiction to resolve retail leasing disputes up to the prescribed limit (currently $750,000). The Tribunal can make a range of orders when determining a dispute including:

• possession orders for the premises
• the payment of money
• the return of bond money
• the completion of works
• the rectification of a disclosure statement; or
• in certain circumstances, an order that a disclosure statement be provided.

The parties to a retail leasing dispute are entitled to legal representation at NCAT.

Conclusion

Entering into a lease is a serious financial undertaking for both landlords and tenants. As such, you should obtain independent legal advice before entering the lease.

Depending on the nature of the lease, certain arrangements will be governed by the Retail Leases Act 1994.

By engaging an experienced commercial or property lawyer, you can be confident that the lease complies with the relevant legislation, they can assist by identifying areas of the lease that may be too restrictive of punitive and may be able to negotiate terms on your behalf.

Small Business

Traps to avoid in Commercial Leases

Commercial leases form part of many business transactions and commercial property is a popular investment choice. Whether you are a tenant or landlord, there is much to consider when entering into a commercial lease. Some commercial leases are classified as ‘retail’ and fall under specific legislation – in New South...

Read more

Contracts Property and Leasing

Commercial leases – Responsibility for repairs and maintenance

Commercial leases – Responsibility for repairs and maintenance A commercial lease is a legally binding contract that gives a tenant certain rights over a property for a set period of time subject to the terms and conditions set out in the lease. A commercial lease is used when leasing property...

Read more