The Commercial Tenancy (Retail Shops) Agreements Act 1985 (the Act) is the primary legislation that helps protect tenants in Western Australia entering into a lease for retail premises. In brief, the Act will override the terms of a lease that contradict or would breach the Act. Prospective tenants should understand their rights so as to enforce them. We run through some the important protections the Act contains to help tenants determine their rights.
What Premises are Covered by the Act?
Generally, the Act will apply to premises with a lettable area of up to 1,000 square metres, used for carrying on a business in a retail shopping centre or selling retail goods, or for a specified business. A specified business includes shoe repairs, dry cleaning and beauty therapy businesses. The Act also covers businesses the definition does not specifically name.
Rent is largely a commercial negotiation between the tenant and the landlord that depends on the premise’s location, size, condition, etc. There are, however, a number of rules relating to rent. For example, turnover rent is rent that is not a fixed amount but a percentage of the actual turnover of the business – usually for the period of one year. If you are renting a premises based on turnover rent, the lease must set out the formula through which the landlord will calculate the rent.
2. Rent Reviews
Most leases include a clause allowing for parties to review the rent (often on an annual basis). It’s important to know that the lease cannot allow more than one method of review at any given time. This means that although rent reviews can alternate (e.g. between fixed rate increases to market rate increases on different review dates), a lease will not allow for a review method where the landlord will choose the greatest return (e.g. the greater of 8% or CPI).
The legislation provides a tenant with additional rights where the lease provides for a market review. A market review means that the rent will change according to the current market price. If the current market price is lower than the rent currently charged, the landlord cannot require the tenant to pay a higher rent that the outcome of the market review.
3. Renewal of the Lease
For leases that are more than six months, the minimum term should be at least five years. This can be an initial term of five years, or five years as part of an initial term and a further term (e.g. three-year initial term with an option to renew for two years). Although tenants can choose to have a term less than the five-year period, they would require approval by the State Administrative Tribunal.
When it comes to exercising an option to renew a lease, the Act states that the landlord must provide notice of the expiry date for the option (6-12 months prior to the expiry date). If the landlord or agent doesn’t provide you with notice, you can possibly extend your option.
4. Operating Expenses
Leases will often require tenants to pay for the operating expenses of the premises. Operating expenses refer to the landlord’s expenses for maintaining and managing the premises or the building where the premises is located, including:
- repairing and servicing elevators;
- facilitating cleaning;
- providing security guards; and/or
- security equipment.
The Act requires that the lease discloses whether a tenant must pay the operating expenses before entering the lease. Further, the Act states that the operating expenses cannot exceed the portion of the tenant’s use. The tenant’s proportion is usually calculated by the lettable area of the premises against the total lettable area of the building. As a tenant can typically negotiate operating expenses, you should review their lease for the definition of ‘operating expenses’ or ‘outgoings’ and assess how much you will benefit from the landlord’s costs.
5. Legal Fees
Not unlike the other states and territories in Australia, the Western Australian Act provides that the tenant will not be required to pay for certain legal fees and other expenses of the landlord. The legal fees that you will not be required to pay for are those accrued during the preparation of the lease agreement. This also means that a tenant will not be required to pay for negotiation costs that the landlord may need to pay for finalising the lease. However, it’s important to note that if the lease is being assigned or sublet, the landlord may be able to retrieve these costs from you.
6. Contributions to Funds
Leases often include clauses that require additional contributions from the tenant to use for major repairs or maintenance requirements. The Act protects these contributions. Firstly, the Act requires that the fund or account that contributions are sent to will need to be subject to auditing. The fund will also need to be maintained to the extent that adequate accounting information will be readily available to the tenants that contribute to the fund. Further, the contribution to funds will need to be solely used for the purpose at which they are being collected.
7. Trading Hours
When it comes to trading hours in the lease, the Act states that a landlord cannot require a tenant to be opened during specific hours. This means that the landlord should provide a tenant with full discretion as to the hours at which they trade from their retail premises.
Before entering a commercial or retail lease, ensure you consider key issues such as rent, operating expenses and other fees payable to the landlord. By understanding these rights as a tenant, you will be able to identify clauses contradicting the Act that would be considered void. If you have any questions or need assistance reviewing your retail lease, get in touch with our commercial leasing lawyer on 1300 544 755.