Are you opening a pharmacy or expanding your existing chemist business? If so, an important step you’ll be thinking about is drafting or reviewing your commercial lease.
What is a Commercial Lease and Retail Lease?
A commercial lease refers to the contract that governs the terms on which you (‘lessee’) will rent your property from the landlord (‘lessor’). Retail leases refer to a type of commercial lease, concerning properties that are wholly or partially intended to be used as a retail shop.
Retail leases usually include:
- The terms of the lease;
- Operating Expenses;
- Rules regarding maintenance and refurbishment;
- Termination; and
- Insurance requirements.
Setting up a pharmacy means your lease will typically be considered a retail lease. However, there are many exceptions to this (e.g. shops opened in office towers).
Each Australian state independently regulates retail lease legislation and as such, you should ensure your lawyer is familiar with the relevant Act. For example, NSW businesses need to refer to the Retail Leases Act 1994 (NSW).
How Long is my Retail Lease Likely to Be?
Your commercial lease will include the term of the lease. Retail leases in Australia are subject to a default five-year minimum term (except in Queensland). This means that terms less than five years will extend automatically to five years, except in certain circumstance. Each state has different circumstances outlining when this can be waived. In NSW, business owners need to seek a Section 16 Certificate.
Your lease may also include an option for renewal to extend your lease before it ends, with the same conditions in place. This spares you the hassle of renegotiating with the landlord on the lease’s terms and avoiding a potentially costly exercise when terms are changed. Depending on the terms of the agreement, the usual period to renew a retail lease is 6 to 12 months or 3 to 6 months before the lease expires.
What Should I Expect from the Landlord?
Australian Landlords must follow disclosure requirements under the relevant state’s retail leasing legislation. These disclosure laws are to protect tenants; ensuring they can fully understand the rights and obligations of all parties to the commercial lease.
The landlord of your pharmacy must then provide you with a copy of the lease as soon as you enter into negotiations or 7 days before you enter into a lease (depending on what state the property is in). Your landlord must also provide you with all disclosure documents at least 7 days before entering into a lease (except in South Australia). A disclosure document is a brief summary of the lease outlining information about the property, outgoings and shopping centre (if applicable). Failure to do so may give you the right to terminate the lease.
Commercial leasing is something you need to get right, and if you have any questions, you should ask your leasing lawyer at the outset. If you need assistance reviewing or negotiating your lease, get in touch with our commercial leasing team.