Following are some questions to consider before signing a commercial or retail lease.

Is it a commercial lease or a retail lease?

The regulatory framework is different for each type of lease:

Parties to a commercial lease (usually for warehouses, offices, and industrial sites) can contract out of the relevant conveyancing and property legislation, and the extent of the tenant’s liability can be negotiated.

A retail lease (for retail businesses and shops) assumes that the tenant has unequal bargaining power with the landlord. It aims to protect the tenant’s rights and places additional obligations on the landlord.

What provisions should you look out for?

Whilst lease transactions vary, the more significant terms relate to:

1. The term of the lease;
2. The premises covered by the lease, rights of access, parking and use of additional amenities;
3. Rent and rent review;
4. Entitlement to affix and remove fixtures;
5. The existence and terms of any option to renew;
6. Obligations for doing work or expending money and to maintain and repair the premises;
7. Restrictions on user and ability to change user;
8. Entitlement to assign or sublet and the conditions of that entitlement;
9. Lessor’s entitlement to terminate the lease for any reason.

Have you been given a disclosure statement?

At least seven days before a retail shop lease is entered into, the lessee must be given a disclosure statement summarising it’s financial obligations. It covers rent, outgoings, rent review, other costs associated with the lease and other important provisions such as the likelihood of demolition and/or relocation of the premises. It also sets out the tenant’s obligations, such as what type of insurance must be taken out, any fitout works to be carried out, whether and how often the tenant is required to redecorate the premises.

If the landlord doesn’t provide a disclosure statement, the tenant has the right to terminate the lease, even after it has been entered into.

Who pays the lease preparation fees?

Under the Retail Leases Act 1994 (NSW), the tenant doesn’t have to pay the landlord’s lease preparation costs or mortgagee consent fees. However, if the tenant requests changes to the lease after returning the tenant’s disclosure statement to the landlord, the tenant may be required to pay for the changes. The tenant is required to pay for the registration of the lease, which should be done for leases with a period of more than three years (including any option to renew period) to protect the interests of both the landlord and the tenant.

For commercial leases, the parties can negotiate who is responsible for the payment of fees.

Takeaways

There are significant differences between retail and commercial leases. Landlords and tenants should understand what is permitted under the retail laws regarding their lease terms and the consequences of non-compliance with mandatory obligations.

The terms of commercial leases are unregulated so it is important to have the terms reviewed to ensure that they don’t heavily favour the landlord and/or place unfair obligations on the tenant.

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Contact us now for free no-obligation confidential initial telephone advice about entering into a retail or commercial lease.