Retail lease agreements are not standardised in the same way as your residential rental lease. Often parties will obtain their own legal representation to assist them with drafting or reviewing and amending a retail lease and you as the lessee should engage a lawyer in order to review the lease and any special conditions which may be contained in the document. The formation of retail leases is legislated in NSW under the Retail Leases Act 1994 (The Act) which also has some key items you should understand before considering a lease.
Before you enter into a lease
Leases prepared for you by the lessor (the owner of the property) to you as lessee (the person leasing the property) are paid for by the landlord. A lessor cannot make you pay for the cost of preparing the lease and if you are asked to pay any of the legal costs, you can refer them to section 14 of The Act which prohibits the lessor seeking those costs be paid by the lessee.
This does not stop the lessor from recovering costs they incur after you have signed the tenant’s disclosure statement, and you request changes to the lease. You will also need to pay the lease registration fees unless you have an alternate agreement with the lessor. Leases which are for a period more than 3 years (inclusive of any option to renew) must be registered, and fees may be incurred for its registration.
What should be in the lease?
A retail lease is not a standard document, but it should contain the following:
Description of the space – The lease should outline the address and what the space is. Spaces larger than 1000 square metres may not be covered by the The Act.
Lease Term – How long is the lease for, when does it start and end, and what is the option for renewal.
Rent and outgoings – The total rent should be outlined as well as payment frequency and any outgoings such as water, electricity and any other services or rates payable by you as the tenant. How will the rent change (will it be increased at renewal?).
Security – How is a bond to be paid? Is it cash, third party guarantee or a bank guarantee.
Fit-out and repairs – Who is responsible for paying for the initial fit-out and any subsequent repairs. Are there existing fixtures included in the rent such as lighting or commercial kitchen facilities?
Business type – what is the permitted use of the space and the type of business you are able to operate? What are the times you are able to operate?
Make good – These are provisions of how you are to leave the space if you vacate the property. Do you have to leave the space empty or repair and replace fixtures to a state prior to your entry into the space.
This list is not exhaustive, and a lessor can add additional provisions as they see fit. You should ensure you reach each of the provisions and that you understand them. Engaging a solicitor to review the lease is common and important for ensuring that there is nothing missed. Often times disputes in retail leases are a result of the parties not understanding how terms operate under the lease.
The lessor should also provide you with a disclosure statement before the lease is signed.
Other Provisions
A lessor cannot make a provision that seeks to have The Act not apply to the lease and as such, a lease containing a term that seeks to contract out of the applicable legislation then that term will be considered void. A lessor may add in a number of other provisions such as:
Insurance – Does the lessor require you to hold certain insurances? They may also require you to provide copies of valid policies and request you prove that you continue to hold them at any time during the lease.
Disputes – How will you resolve disputes if they arise with the lessor and what steps must be taken to resolve them. Are the parties required to resolve disputes through mediation before litigation?
Recovery of expenses – In the event of non-payment of an outgoing on time and the lessor pays it on your behalf, what are the penalties and how will they recover those fees from you?
Interest – If you fall behind on rent or fail to pay an outgoing, will the lessor charge interest on the overdue amount and how will it be calculated?
Termination – If a breach of the lease occurs, how can it be terminated and what rights will the parties each have in respect of that termination?
Other conditions – Leases are subject to the parties agreeing to the contents and terms. If there is a term you do not agree to or are unsure of, you should seek legal advice about that term.
Legal advice benefits
Legal advice is beneficial as the solicitor will review the lease in full and put the contents into simple terms for you to understand as well as warn you about anything in the lease which you should be sure to acknowledge before you enter into the lease. Any advice provided by the solicitor will be comprehensive and in plain English. This advice will
This does not mean only those sections you seek advice on are important, but they may be terms which could have the most impact on you and your business. If you meet with one of our solicitors, we will review your agreement and provide you with a letter of advice. Once the advice has been prepared, we will sit down with you to go through the letter and the agreement to ensure you understand as well as to answer any questions you may have.
What next?
Once you are happy with the lease and the terms, you will need to complete any steps which the lessor has outlined are required to be completed prior to commencement. This includes paying a bond, obtaining relevant insurance, paying the registration fees, and signing the lease agreement and returning it to the lessor.
If you are thinking about entering into a lease agreement to start your new business or move your existing business, get in touch with our team today to discuss how we can assist you get the best start in your new location.
This article is general in nature and is not intended to be tailored legal advice. Before you enter into any agreement it is recommended that you seek formal legal advice that considers your situation and any relevant circumstances.
