Retail leases differ from commercial leases in that they are subject to compliance with the provisions of the Retail Leases Act 1994 (NSW) (“the Act”).
Is my Lease a Retail Lease?
The Act generally applies to and overrides the provisions of a lease agreement where the purpose of the use of the premises is as a retail shop. A retail shop includes premises that are:
• used wholly or predominantly for the carrying on of a type of business prescribed by the Act, or
• located in a retail shopping centre regardless of use.
The Act does not apply to leases for a term of 25 years or more (including taking into account any options to renew the lease).
The Act also excludes certain shops from the operation of the Act, including shops
• with a lettable area of 1,000 square metres or more, or
• operated within other businesses such as cinemas or bowling alleys provided that both are operated by the same person.
As the Act and regulations that exempt and exclude certain shops from the operation of the Act are subject to change, it is important to seek advice as to whether a lease falls within the scope of the Act, as it greatly impacts the obligations and process required to be completed to lawfully enter into the lease.
Requirements where my Lease is a Retail Lease.
The Act is designed to protect retail tenants and to increase transparency and certainty about the lease deal during negotiation.
Landlords must provide a Lessor’s Disclosure Statement providing information to the proposed retail tenant including all outgoings payable, including the amount that the tenant must pay under the lease. The tenant is only required to pay the amount disclosed unless the landlord can justify why the estimate was lower than the actual amount payable.
The landlord must register retail leases of longer than three years within three months of the tenant returning the signed lease.
Any cash security deposit paid by a retail tenant to the landlord must be lodged with the NSW Government’s Retail Bond Scheme within 20 business days of receipt. This money cannot be called upon without the agreement of the tenant.
The Act prohibits the landlord from seeking payment of certain costs from their retail tenant, including:-
• The landlord’s legal fees for preparation of the lease;
• The consent fees of the landlord’s mortgagee for the commencement of the lease; and
• Key money, being an amount paid to the landlord in exchange for granting a lease.
It isn’t just potential retail tenants who should seek advice on whether a lease must comply with the Retail Leases Act to in minimising costs and maximising information before entering into the lease. As landlords of retail tenants face fines of up to $11,000 for breaches of the Act, it is also crucial that landlords obtain advice to understand their obligations in the event that their premises is leased by a retail tenant.
Whether a landlord or a tenant, for advice on retail leases, contact Baker Love Lawyers.