Are you looking to open a new fast food restaurant? Whether this your first restaurant, or simply an addition, selecting the right location is an important decision, and you should strongly consider the terms offered in the retail lease. This article will set out what you need to understand before signing a retail lease in NSW.
Why a Retail Lease?
Retail leases in Australia refer to a type of commercial lease, intended wholly or partially for retailers. These legal documents are used to set out the rights and obligations of the owner of the retail property (landlord), and the party who has agreed to occupy the premise (tenant).
Fast food restaurants in Australia come under the auspices of the state/territory specific Retail Leases Act. As you will be setting up a business in NSW, you will be referring to the Retail Leases Act 1994 (NSW).
If your plan is to operate on a national scale, you must be familiar with retail leasing legislation on a state-by-state basis. This is common practice for many business owners running a retail operation, as retail businesses don’t usually confine themselves to geographic boundaries.
In NSW, the landlord must give you a draft copy of the following:
- The retail lease before it is signed;
- A disclosure document; and
- A copy of the Retail Tenancy Guide by NSW Fair Trading.
A disclosure document is a brief summary of the lease outlining information about the property, outgoings and shopping centre (if applicable).
Similar disclosure laws are found in all other states/territories. The point of these laws are to make sure tenants have all the necessary information available to understand the rights and obligations of all parties before signing the lease.
Always spend time asking your leasing lawyer any questions relating to your NSW retail lease, namely any unclear rights and obligations. Knowing the terms of your retail lease will always help down the track should a dispute arise, or in the event that your landlord fails to comply with the terms.
Commencement of the Retail Lease
The term of your lease will be the period in which your restaurant has an exclusive right of possession to use the commercial property. In NSW, this will occur when either:
- You have possession of the property as a lessee;
- You commence paying rent (Deposits non-inclusive);
- Or all parties have signed the lease or assignment.
Termination of the Retail Lease
The length of your lease will be a key term included in your retail lease. Except in Queensland, all retail leases will come with a default minimum term of five years. Any retail lease for less than five years will be extended unless a waiver is correctly in place. In NSW, this will require a Section 16 Certificate.
An ‘Option to Renew’, as the provision suggests, is an option that will allow you to renew your lease based on the same conditions before the lease ends. Failure to negotiate this clause could prove to be a costly activity, as renewing the lease will be a matter for approval by the landlord. This can disadvantage tenants at the end of the lease by making them settle for different rental terms or services charges.
As you can see, it is worthwhile having a clear idea of how long you wish to occupy the premise when negotiating. As the business owner, you should seek advice from a legal or business adviser on the length of time suitable for you to recoup investments and make a profit.
The Rent of the Retail Lease
Rent reviews are one of the most common causes of disputes between landlords and tenants, and as such, it’s important you understand if and how rent will increase over time.
Rent reviews can be carried out in several ways, including:
- Consumer price index (Inflation) adjustments done on a periodic basis;
- Fixed amount or fixed percentage increases so that the rent increases or decreases by agreed amounts in dollar terms or percentages at agreed intervals of time;
- Market rent review to increase or decrease rent based on the current market conditions.
CPI adjustments and fixed amount/percentage rent reviews generally take place every year on the anniversary of the lease. Market rent reviews usually occur every 3-5 years and/or at the exercise of an option to renew, often reflecting the expense of having an independent valuation.
Landlords will prefer a market rent review if the market looks like it will continually increase over the lease’s term. They will prefer CPI increases or a fixed rent review when the market seems unreliable, to guard against rent decreases.
Ask your lawyer about whether you may need to negotiate a rent-free period to complete a fit-out as they can take some time to complete. During this time, while the shop is not trading, this term may be necessary if you cannot afford the rent.
If you are looking to start your own fast food restaurant or expand your already existing fast food restaurant, you should seek legal advice. If you have any questions, get in touch with our commercial leasing lawyers on 1300 544 755.