If you are a small business owner, it is more than likely you will deal with a commercial lease at some point during the life of your business. Entering into a lease is a major commitment and you need to make sure you are fully aware of and understand your rights and obligations on entering into the lease. Different rights and obligations attach to retail and non-retail commercial leases in NSW and it’s important to know the difference.

A commercial lease is a document that sets out the rights and obligations of the owner of a commercial property (called the landlord or lessor) and another party that has agreed to occupy the property (the tenant or lessee).

Retail commercial leases

A retail commercial lease is a type of commercial lease. In NSW, retail leases are governed by the Retail Leases Act 1994 (NSW) (the Act). For the Act to apply to business premises, the business must either be:

  •   Included in the list of businesses specified in schedule 1; or
  •   Conducted in premises located in a retail shopping centre

The list of businesses included in schedule 1 is extensive, from bakeries and cookie shops to card shops and barbers.

Under section 6 of the Act, the Act does not apply to leases:

  •   That have a term of greater than 25 years (the term of the lease is taken to include any term for which the lease may be extended or renewed at the option of the lessee);
  •   Leases entered into before the commencement of the section;
  •   Leases entered into under an option granted before the commencement of the section; or
  •   Any other lease prescribed by the regulations as exempt from the Act.

Greater rights for tenants under the Act

The Act creates an additional layer of regulation protecting the tenant in the landlord-tenant relationship. For example:

  • The landlord must provide the tenant with a ‘lessor’s disclosure statement’ which sets out estimates such as the outgoings payable, at least seven days before the retail shop lease is entered into (section 11)
  • The landlord must provide the tenant with a copy of the proposed form of lease at the negotiation stage (in a non-retail commercial lease, a landlord would not normally provide a draft lease until negotiations have been formalised) (section 9)
  • The landlord is responsible for preparing the lease and the cost of preparation cannot be passed on to the tenant (in a non-retail commercial lease, the landlord can seek contribution from the tenant) (section 14)
  • The Act imposes obligations on the landlord with respect to the security deposit – such as lodging it with the Director-General (section 16C)

Conclusion

The Retail Leases Act 1994 (NSW) provides greater protection to tenants in imposing greater regulations on landlords. When entering into a commercial lease, it’s important to understand whether the Act applies, as this means that the landlord must provide, for example, a lessor’s disclosure statement and cannot pass on the cost of preparing the lease to the tenant.

Jill McKnight
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