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If you are a tenant about to enter into a retail lease in New South Wales (NSW), it is crucial to understand your rights when leasing retail space. A lease is a legal contract between yourself and a landlord to use retail space to run your business. The Retail Leases Act 1994 (The Act) sets out the legal arrangement between tenants and landlords in NSW. This article outlines your legal rights before entering into a lease to help you understand what is involved when leasing a retail space.

Disclosure Statement

Your prospective landlord must provide you with a disclosure statement at least seven days before the lease begins. A disclosure statement outlines the key commercial terms and provisions of the lease. It also acts as a summary of your financial obligations. 

You should ensure that your disclosure statement includes any agreements that you and your prospective landlord reached in prior negotiations. You landlord could face a penalty if they:

  • do not provide you with a disclosure statement; or
  • provide you with an incomplete disclosure statement. 

You can also terminate the lease within six months of entering into the lease.

Outgoings

If your prospective landlord intends on recovering outgoings from you, they must outline the outgoings in your disclosure statement. Outgoings refer to the costs associated with maintaining the shop that you lease. They can include:

  • council rates;
  • taxes;
  • security fees;
  • fire protection equipment;
  • waste and sewerage fees;
  • cleaning;
  • insurance premiums; and 
  • utilities like electricity and water.

Your prospective landlord will typically first incur the costs of outgoings and then pass the costs onto you. Your disclosure statement must state an estimate for any relevant outgoings and how they will be calculated.

The landlord cannot recover outgoings down the track if they did not include them in your disclosure statement.

Lease Preparation

Before entering into a retail lease in NSW, your prospective landlord must provide you with a copy of the:

You should ensure the lease contains any details that you have previously negotiated with your prospective landlord. You lease should include:

  • the term of the lease (start and end date);
  • a description of the shop;
  • the value of rent;
  • how the rent can be changed;
  • the type of business;
  • any outgoings you must pay;
  • what security or guarantee is required;
  • who repairs and maintains the property; and
  • business trading hours.

Your prospective landlord must pay for the preparation of your lease, including obtaining consent from a mortgagee if necessary.

Permitted Use

Permitted use in your retail lease describes how you can use the space when running your business. It is essential that your lease and disclosure document accurately and broadly describe your shop’s permitted use.

Depending on the type of business you plan on running, you may also need consent from your local council. The shop may not be suitable for the permitted use you have outlined in your lease. 

For example, some retail spaces may not be suitable for food services.

Therefore, it is your responsibility to contact your local council and make enquiries about how you can use the premises. To do so, you should order a planning certificate to determine whether the shop is zoned for your business plans. A planning certificate will set out: 

  • the permitted use of the shop; 
  • what is permitted without development consent; 
  • what is permitted only with development consent; and 
  • which plans are prohibited. 

If your business plans change and you wish to use the same shop for your new plans, you need to obtain consent from both your: 

  • prospective landlord; and 
  • local council.

Security

Before occupying the premises, your prospective landlord will typically require you to provide them with security to protect themselves in the event of a default. A default occurs when you fail to perform your obligations under the lease. 

For example, not paying your rent is an event of default.

A security bond is typically equivalent to three to six months of rent but can vary depending on the negotiations between you and your prospective landlord. A security bond can be a:

  • security deposit;
  • bank guarantee; or
  • personal guarantee.

Your landlord is likely to request a personal guarantee, especially if your company entity enters into the lease rather than you personally. It is essential to be aware that providing a personal guarantee may mean that your personal assets, like your car or house, may be at risk. 

Therefore, you may wish to negotiate a bank guarantee over a personal guarantee with your prospective landlord.

Incentives

Your prospective landlord may use a lease incentive to entice you to enter into the lease. Incentives may include: 

  • an offer for a rent-free period; 
  • a rent reduction; or 
  • a contribution to the fit-out of the premises.

An incentive may be outlined in a separate incentive deed that goes hand in hand with your lease. You will need to review this deed carefully as each incentive has different tax implications.

Key Takeaways

As a prospective tenant entering into a retail lease, it is crucial to be aware of your legal rights and protections under the Act. Your prospective landlord has obligations they must comply with. Being aware of your landlord’s obligations and rights ensures that you are in the best position when negotiating your lease. Negotiating and entering into a lease can provide a solid foundation when starting your business. If you have any questions about entering into a lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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