Summary
- Retail leases apply to premises predominantly used for selling goods or services to the public (typically in shopping centres), and are governed by state-based retail legislation providing mandatory tenant protections, whilst commercial leases apply to warehouses, offices, and industrial premises with greater freedom to negotiate terms.
- Retail landlords must provide comprehensive disclosure statements before lease execution covering commercial terms, outgoings, planned works, and historical turnover data, with inadequate disclosure potentially entitling tenants to terminate the lease or seek compensation.
- Retail lease legislation across Australian states and territories also prohibits landlords from charging lease preparation fees and provides enhanced protections against unconscionable conduct, whereas commercial lease terms are primarily negotiated between the parties under general property law.
- This article is a guide to retail and commercial leases for business owners in Australia, explaining key differences, regulatory frameworks, and tenant rights across jurisdictions.
- LegalVision is a commercial law firm that specialises in advising clients on commercial and retail leasing matters.
Tips for Businesses
Confirm whether your lease is classified as retail or commercial by referring to the relevant state or territory legislation before signing. Review all disclosure statements carefully and seek legal advice if information appears incomplete. Commercial tenants should pay particular attention to rent review, outgoings, assignment, and termination clauses during negotiations.
Retail leases and commercial leases are governed by different legal frameworks, and choosing the wrong classification can significantly affect your rights as a tenant or landlord. Understanding the distinction before you sign is essential. This article will outline the 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 do not heavily favour the landlord. Commercial tenants should particularly scrutinise 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.
Retail landlords must provide comprehensive disclosure statements covering commercial terms, shopping centre operations, planned major works, and all payable costs. Inadequate disclosure may entitle tenants to terminate the lease or seek compensation.
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