In Short
Retail and commercial leases operate under different legal frameworks. Retail leases are regulated by state-based retail leasing legislation that provides additional protections for tenants. Commercial leases are mainly governed by general property laws and allow greater freedom for landlords and tenants to negotiate terms.
Tips for Businesses
Confirm whether your premises fall under retail leasing legislation before signing a lease. This classification affects disclosure obligations, legal protections, and who pays certain costs. Review permitted use, location, and relevant state legislation. Seek legal advice to assess key clauses such as rent reviews, outgoings, termination rights, and assignment provisions.
Summary
This article explains the legal differences between retail and commercial leases for business tenants in Australia. LegalVision, a commercial law firm, specialises in advising clients on commercial leasing and business property arrangements.
If you currently, or are planning to, lease premises for your business, you have probably heard the terms ‘retail lease’ and ‘commercial lease’. But what is the difference? Retail leases differ from commercial leases because they have different regulatory frameworks that are outlined by legislation. This article will outline key differences between a retail lease and a commercial lease.
What is a Lease?
A lease is a contract that sets out the rights and obligations of the owner of a property (the landlord or lessor) and the person or entity who will occupy the premises (the tenant or lessee). The lease document will bind both parties, so it is important that both parties negotiate the lease prior to entering into any contractual arrangement. Once the lease has been negotiated and executed by both parties, the tenant obtains a legal interest in the land, which grants them the right to exclusive possession of the premises.
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Commercial Lease
A commercial lease usually applies to a premise that is used as a warehouse, industrial site, manufacturing plant, distribution centre, office building, medical centre, or professional services facility. The distinction is primarily in the use of the premise and whether any form of retail sales to the general public takes place at the premise, as this may trigger retail lease classification.
Features of a Commercial Lease
The retail and commercial lease distinction can blur for service businesses such as dental practices or travel agents. Premises in a shopping centre are usually treated as retail and protected by retail legislation. However, if the same business operates in a commercial building with offices, the lease may be commercial. Retail legislation differs between states and territories. Each jurisdiction defines retail leases differently. You should confirm whether your lease is retail or commercial. This classification affects your rights and obligations.
All leases usually contain clauses for:
- payment of rent;
- rent increases; and
- maintenance and repairs of the premises.
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Retail Leases
A retail lease is a lease of a business premises where the permitted use is for the predominant use is for the retail sale of goods and services. These shop premises are usually located in shopping centres, protected under state-based retail Acts. Each Act has different criteria as to what is considered a retail lease. You should refer to the relevant Act to see if your permitted use falls under the classification of being a retail lease.
| State | State-Based Act |
| New South Wales | Retail Leases Act 1994 (NSW) |
| Victoria | Retail Leases Act 2003 (Vic) |
| Queensland | Retail Shop Leases Act 1994 (QLD) |
| Tasmania | Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (TAS) |
| South Australia | Retail & Commercial Leases Act 1995 (SA) |
| Western Australia | Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) |
| Australian Capital Territory | Leases (Commercial and Retail) Act 2001 (ACT) |
| Northern Territory | Business Tenancies (Fair Dealings) Act 2003 (NT) |
What are Retail Premises?
As a general rule, if the premises are in a shopping centre (a cluster of five or more shops) and predominantly used for selling goods or services, then the arrangement is likely to fall under one of the state or territory retail leasing Acts, however, it is best to refer to the relevant retail legislation to confirm whether the premises is retail or not.
Each state also has exceptions as to what will be considered a retail lease. For example, exceptions may apply if:
- the size of the premises exceeds 1,000 square metres;
- a shop in NSW operates within a cinema or bowling alley;
- the tenant is a listed corporation; or
- the lease is for over 25 years.
When Do You Enter Into a Retail Lease?
It is important to know when you have entered into a retail lease, because your landlord will be subject to additional obligations. For example, under the Retail Leases Act 1994 (NSW), a retail lease commences when a person enters into possession of the retail shop or begins to pay rent as a lessee under the lease.
3 Key Differences Between a Retail and Commercial Lease
Although commercial and retail leases have many similarities, they have distinct legal differences. Retail leases are governed by state retail leasing legislation. These laws provide mandatory protections recognising the power imbalance between retail tenants and landlords. In contrast, commercial leases are mainly regulated by general property and conveyancing laws. These laws give parties greater freedom to negotiate terms.
Further, retail and commercial leases have several other distinctive differences:
- Disclosure of Information: Retail lease legislation imposes strict obligations on landlords to provide tenants with comprehensive disclosure statements before entering into the lease. These disclosure statements must include detailed information about the commercial terms, shopping centre operations, historical turnover data, planned major works, and all costs payable under the lease. Failure to provide adequate disclosure may give the tenant the right to terminate the lease, seek compensation, or challenge unfavorable terms even after execution.
- Unconscionable Conduct and Misleading or Deceptive Conduct: Retail leasing premises receive enhanced protections concerning unconscionable conduct and misleading or deceptive conduct of landlords, with specific remedies available through tribunals.
- Lease Preparation Fees: In retail leases, most states prohibit landlords from charging tenants for lease preparation costs, legal fees, or mortgagee consent expenses. Commercial lease parties typically negotiate these fee allocations freely.
Key Takeaways
There are significant differences between a retail and commercial lease. Retail landlords and tenants should understand what is permitted under the retail legislation regarding their lease terms. They should also understand the consequences of noncompliance with the retail legislation. In some instances, the tenant has a right to early termination or compensation.
On the other hand, commercial leases operate with minimal regulatory oversight and require legal advice and careful negotiations on the part of the tenant to ensure that lease terms are balanced and not heavily favoring the landlord. Commercial tenants should particularly scrutinize clauses relating to rent reviews, outgoings, assignment restrictions, and termination rights.
If you need help with your business structure, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced leasing lawyers help businesses across industries manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
A lease is a contract that sets out the rights and obligations of the owner of a property (the landlord or lessor) and the person or entity who will occupy the premises (the tenant or lessee).
A retail lease is a lease of a business premises where the permitted use is for selling goods.
Commercial leases are usually premises that are used as a warehouse, industrial site or an office in a commercial building with no retail activity.
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