While we all know what a lease is, it is less well known that there are three different types of leases:

All are distinct and regulated by different laws. If you are a tenant or landlord and are planning to lease property for business purposes, it is important to be aware of these differences because they will impact your obligations and rights under the lease. This article will explore the similarities and differences between retail and commercial leases so that you can decide which is more appropriate for your business.

What is a Commercial Lease?

commercial lease is an agreement between the owner of a commercial property (landlord) and a person wanting to lease the premises to conduct business from that property (tenant). A lease allows the tenant exclusive occupation of the premises to be leased. It also notes that the landlord must ensure the tenant has quiet enjoyment of the premises without their interference.

A commercial lease is a general “catch-all” term referring to all non-residential leases. However, within the category of commercial leases, there are industrial leases and retail leases.  

An industrial lease is considered a general commercial lease, along with non-retail leases, such as office or warehouse leases. The terms of these leases are mainly reached by commercial negotiations between the landlord and tenant (or their lawyers). 

What is a Retail Lease?

The legal test for determining whether a premises is a retail lease and subsequently attracts the protection of retail leasing laws varies from state to state. However, as a general rule of thumb, you must look at the purpose of the tenancy. A premises will require a retail lease if the tenant’s business is predominantly for:

  • selling;
  • hiring; or
  • providing goods or services to the public.

Premises that are not considered retail premises if a tenant primarily uses them for:

  • wholesaling;
  • manufacturing; or
  • storage.

Main Points of Difference

Issue Commercial Lease Retail Lease
Disclosure Requirements Other than due diligence in the usual commercial course of negotiation, there are no disclosure requirements for commercial leases. Each state and territory have specific disclosure requirements for the landlord to let the tenant know certain things. These include the proposed outgoings and costs for the premises seven days before the lease is signed.
Legal Costs The legal costs of lease preparation between the parties are a matter for negotiation. However, it is not uncommon for the tenant to pay the landlord’s legal fees. The landlord cannot pass on its legal costs to the tenant for lease preparation. The only exception to this is in South Australia, where the landlord can pass on half of its legal fees to the tenant.
Assignment of the Lease The parties must follow the clauses in the lease relating to the assignment of the lease. The lease itself and specific retail leasing laws regulate the assignment of leases. Subsequently, they provide the tenant with greater rights than for commercial leases.
Disputes All disputes must first go to court unless the parties agree to private alternative dispute resolution. However, there is no provision to take legal disagreements to an administrative tribunal. In some cases, retail leasing laws permit the parties to participate in state tribunals to resolve disputes.
Relocation and Demolition The parties rely on the lease for any relocation or demolition clauses. In most cases, retail leasing laws set minimum requirements surrounding a landlord’s relocation and demolition proposals.

 

Key Takeaways

Before you enter into a lease, you should be aware of whether it is retail or commercial. Commercial leases have less regulation than retail leases and rely on the negotiation between the landlord and the tenant.

On the other hand, retail leases rely on both negotiations and retail leasing laws. If you have any questions on whether your business requires a retail lease or a commercial lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

Emma Heuston
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