Are you looking into leasing a retail shop in NSW? If you’re considering entering into a retail lease, it might be worth speaking with a leasing lawyer to get your head around the many legal pitfalls and considerations that one ordinarily encounters when entering a lease for a retail shop. According to the NSW Retail Leases Act, a “retail shop” is defined as:
- Premises used wholly or predominantly for one of the 134 different purposes set out in Schedule 1 of the Act, whether or not they are located in a retail shopping centre; or
- Premises used for the carrying on of any business in a retail shopping centre.
What’s interesting is that the Retail Leases Act fails to properly define the word “shop”, despite frequently referring to the word in Schedule 1 where it lists businesses to which the Retail Leases Act applies. In our experience, if the site on which the business operates looks and operates like a shop, then it probably is a shop.
What is a lease?
A lease gives its tenant the legal right to use the premises to carry on their business and establishes the terms of the agreement between tenant and landlord. Sometimes in a Lease Agreement, the landlord is referred to as the Lessor, whereas a tenant may be referred to as the Lessee. If you meet all of your obligations under the terms of the lease, the lessor will have no grounds to evict you. This means that you can enjoy exclusive, uninterrupted use of the premises without worrying that the landlord will try to sell your shop or interfere with your business’ operations.
What is the purpose of a lease?
A lease serves a very important function. Namely, it gives you protection over your right to use and occupy the premises and sets out the terms and conditions under which the parties agree to enter the lease agreement. It allows you to run your business from the shop. Leases cover a range of issues and can have very lengthy terms, which is why it is important to have a leasing lawyer put these agreed terms into writing so that there are no misunderstandings down the track as to what was agreed.
The Retail Leases Act
In NSW, the Retail Leases Act governs almost all shop leases with only a few exceptions. A good rule of thumb is to assume the Act does apply, and act accordingly. The Act is strict about landlord’s obligations and affords strong rights to the tenants. Upon the landlord breaching the Act, you, as the tenant, may have the right to terminate the lease and, in some cases, seek compensation from the lessor.
How to prepare a lease
A draft lease is very important to have before you offer the property to any potential lessees. It is actually a requirement that one be prepared prior to making the property available for lease. Typically, the lessor or its agent will instruct the lessor’s leasing lawyer to prepare the final lease for you to sign. At least one week before any potential lessees sign the actual lease, they must be given a Disclosure Document. Make sure to consult your leasing lawyer and make all necessary enquiries if anything in the Disclosure Document is concerning.
Only once you are completely satisfied that the documents clearly reflect the terms and conditions of the lease agreement, should you go ahead and sign the lease. If there are any approvals that you will need, from council or otherwise, to lawfully operate your retail shop, make sure to obtain these before you sign. Also, keep the date for exercising the option in the front of your mind.
What expenses should I expect?
Depending on the terms of your lease agreement, your rental amount, method of rental review and total outgoings will vary. It is important that you, and ideally a leasing lawyer acting on your behalf, read the entire agreement, including all the details in the schedule attached to the lease to understand the particulars of your tenancy. So that there is no confusion when it comes to singing the lease, all items in the schedule need to be either completed or marked as “not applicable” where appropriate.
Are you considering entering into a retail shop lease in NSW? Has a draft lease been prepared? Has a disclosure document been provided at least one week before signing? Have you looked over the terms in the schedule and had legal advice regarding these terms?