Commercial leases form part of many business transactions. When leasing commercial
property, it is important for both landlords and tenants to understand the relationship
they are entering and the rights and obligations they each have. A commercial lease
governs such matters.
Some commercial leases are classified as ‘retail’ and, in New South Wales, are
governed by the Retail Leases Act 1994 (NSW) (the ‘Act’). A retail lease is essentially a
commercial lease regulated by the Act.
The Retail Leases Amendment (Review) Act 2017 which commenced on 1 July 2017
aims to enhance transparency during the leasing process and streamline some of the
key features of retail leasing. This article provides a brief overview of retail leasing and
explains some of the important changes impacting retail leases.
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. For a new retail lease the following documents
must be available before the landlord or agent offers to lease retail premises:
- a draft copy of the proposed lease;
- a disclosure statement;
- the NSW Retail Tenant’s Guide, which outlines the rights and obligations of retail
tenants and landlords and explains some commercial matters.
These requirements are widely referred to as a landlord’s disclosure obligations.
Disclosure statement
The disclosure statement outlines important information about the lease and includes
details about: - the premises to be leased, amenities, shared facilities and any other items
included 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 estimated liability for itemised outgoings;
- tenant’s fit out requirements;
- relocation or demolition clauses and details of any future works planned;
- specific information for shopping centre leases such as trading hours and details
of other retail shops, leases, etc.
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The lessor disclosure statement must be provided to a tenant at least seven days before
the lease commences.
Key changes introduced
Excluded premises
The characterisation of a property as a ‘retail premises’ is usually obvious by the nature
of the property itself and its location. Retail premises largely include shops and outlets
situated in a retail centre and / or utilised for selling, hiring or providing goods and
services to the public.
Certain premises, although located in a retail shopping complex, are now excluded from
the Act. These include premises in which ATMs, vending machines, storage lockers and
digital display screens are situated. Market stalls of a temporary nature are also
excluded from the Act.
No minimum lease terms
Retail leases previously needed to be for a term of at least five years unless the tenant
obtained a solicitor-verified section 16(3) certificate waiving that requirement.
Traditionally, this was to allow tenants the opportunity to develop longevity and goodwill
in a business. The requirement however was frequently contracted out of by agreement
between the parties and a retail lease no longer has a minimum term requirement.
Registration requirements
Leases for a term exceeding three years must be lodged for registration within three
months after being signed by the tenant and returned to the landlord. The landlord must
also provide the tenant with a copy of the fully-signed lease within three months of
having received it from the tenant.
The Act provides some leeway for delays due to the need for a landlord to obtain
mortgagee consent to the lease and for delays beyond the control of the landlord.
Compensation for termination within six months
Failure by the landlord to issue a lessor disclosure statement within seven days prior to
the lease being entered or for providing a materially false, misleading or incomplete
disclosure statement enables a tenant to terminate the lease within the first six months.
The Act now provides that tenants who validly terminate a lease in such circumstances
have the additional right to claim compensation for expenses reasonably outlaid in
entering the lease including recovery of fit-out costs.
Disclosure statements and outgoings
Disclosure statements play an important role in the retail leasing process and must set
out the tenant’s liability for outgoings and estimate the cost of those items.
New provisions preclude a landlord from requiring a tenant to pay for an outgoing that
has not been included in a disclosure statement. Further, landlords are restricted to
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claiming only the estimated amount of an outgoing noted in a disclosure statement in
circumstances where the actual cost exceeds the estimated cost and there are no
reasonable grounds for the estimate provided.
The restriction does not apply to taxes, rates or levies imposed under legislation and not
anticipated or effective prior to issuing the disclosure statement.
The definition of outgoings now specifically includes fees charged by the landlord in
connection with the management, operation, maintenance or repair of the retail shop
building or land.
Disclosure statements may be amended by agreement between the parties after the
lease has commenced – any changes will be effective as determined in the agreement.
Additionally, the New South Wales Civil and Administrative Tribunal (NCAT) may order
the rectification of a disclosure statement or deem that a disclosure statement has been
provided in certain circumstances.
The jurisdictional limit for resolving retail lease disputes at NCAT has increased from
$400,000 to $750,000.
Turnover rent
Online transactions are clearly excluded from calculating percentage turnover rent
except when goods relating to the transaction are delivered to the leased premises for
collection or where the online transaction occurs whilst the customer is on the premises.
The landlord is prohibited from requesting information about online transactions unless
they fall into the exempted categories noted above.
Demolition clauses
A demolition clause allows the landlord to terminate a lease if the building in which the
leased premises is situated is to be demolished. These provisions have been unclear in
the past so the definition of demolition has been amended to clarify that ‘repair,
renovation and reconstruction’ works may invoke a demolition clause.
This means that only part of a building needs to be the subject of demolition work for a
landlord to rely on a demolition clause in the lease.
Conclusion
Reforms to the Retail Leases Act 1994 have introduced changes to the retail leasing
process. Leasing documents and procedures should be carefully reviewed to ensure
compliance with the Act and parties should be conversant with their respective rights
and obligations.
If you or someone you know wants more information or needs help or advice, please
contact us on 02 9191 9293 or email mail@rnlegal.org