If you are a hairdresser and are looking to open up a salon, you will enter into a retail lease. Signing a lease is a binding agreement that attracts serious financial commitment. A landlord will be under no obligation (subject to the terms of the lease) to reduce your rent or cut your contract short if your salon is underperforming. Under state-based retail lease legislation, your landlord will have certain obligations with which they must comply. Below, we set out your landlord’s duties and the terms you should look out for in your retail lease.
1. Obligations of Landlord and Tenant
In NSW, the Retail Leases Act 1994 (NSW) (the Act) regulates legal arrangements between the landlord and tenant. The Act offers some protection for the tenant, such as the fact the landlord cannot charge key money or lease preparation fees and regulates what is to occur in the event of a dispute.
Before signing your lease, it is critical you check with your local council to see if written consent is needed to operate your salon. If so, you should incorporate a special provision into the lease to ensure the lease is subject to the council granting you development consent.
The duration of the lease will dictate the time your salon will be able to operate from the landlord’s premises. The lease must include the term, and it may also include an option for renewal or extension which will guarantee you an additional term provided you do not breach the original term.
Under section 16 of the Act, the minimum lease in NSW runs for five years (including option periods). You can reduce the minimum period by giving the landlord notice, signed by your lawyer or conveyancer, stating you agree to the shorter duration. Notably, at the lease’s renewal, you will not be required to extend for a minimum of 5 years.
3. Permitted Use
Permitted use describes the type of business that you will be permitted to operate from the premises. It is essential the permitted use is broad enough to allow you to carry on your salon unhindered. You will need to note whether the lease restricts you from adding additional business activities to your salon. For example, you might wish to expand your service and incorporate other beauty treatments and services such as nails, massage or aromatic therapy. Your permitted use should then specify, “Hair and beauty salon including beauty treatments” as if it only specifies “Hairdressing”, the beauty treatments would be in breach of your lease.
To run your salon, you will need to obtain the landlord’s and council’s consent for the relevant business activities. If you are taking over someone’s lease, you will need to check personally with the council to make sure that approvals are in place – it is essential you obtain approvals in writing.
4. Lease Preparation
Under the Act, the landlord cannot charge you with the costs of preparing the lease. You will, however, usually have to pay for any registration and mortgagee consent fees.
5. Rent and Rent Review
You should know when rent is due and the manner in which you will pay rent. Further, you will need to note your obligations in the event you make a late payment. Generally, all leases include clauses that address when and how a landlord will review and increase the rent payable under the lease. A rent review typically takes place annually on the anniversary of the lease, using the method specified in the lease agreement. It is prudent to obtain legal advice on the lease’s rental provisions before agreeing to a commercial lease. Before signing the lease, you should also consider the method of rent review.
6. Shopping Centre Leases
If your salon operates in a shopping centre, there are additional points to note. For example, you may be required to contribute to the cost of advertising of the shopping centre (i.e. the promotion levy), which is payable on top of your rent and other outgoings. It is also essential that you check the centre’s trading hours. As a salon, your hours of operation may be early or late at times and therefore, you must ensure that the centre’s opening hours accommodate this. There are sometimes penalty fees for opening early or late in centres.
Under section 42 of the Act, the landlord can reserve the right to refuse to sublease at their discretion. It is not uncommon that a salon subleases the premises to another individual salon. Accordingly, if you have plans to sublease your salon in part to another hairdresser or beauty therapist, you will need to look out for whether there is a prohibition of this in the lease and negotiate the right to sub-lease or sub-licence part of the premises as part of the original lease.
8. Maintenance of the Premises and Make Good
Who repairs and maintains the equipment and the premises itself? Generally the tenant is responsible for cleaning and day to day maintenance, and the landlord will remain responsible for structural repair. However, you must carefully consider the lease and also consider the “make good” requirements to ensure you understand how you are to hand back the premises at the end of the lease.
You may need to address terms of renovation in your lease as leases can require you to refurbish the premises at regular intervals (particularly if your salon is in a shopping centre). Refurbishing can be quite costly, and you should ensure your lease clearly sets out the nature, timing and extent of the refurbishment.
- In signing to a retail lease, you are signing up to a binding agreement with the landlord, so ensure you understand your obligations under the lease.
- It is essential your lease is clear and reflects your needs.
- The Act will apply to your lease
- It is always advisable to obtain legal advice.
If you have any questions about your salon’s retail lease, get in touch with our commercial leasing lawyers on 1300 544 755.