Many enterprise sized businesses have brick and mortar stores, meaning you’ll potentially have several retail leases across different states and territories. Each state/territory has specific legislation that governs the relationship between a business and landlord. Before entering into a lease, you should know of the legislative changes and how they can affect your business. You should also know what you can include in your lease so to avoid having to pack up your store and move a couple of shops down if you get into a dispute with your landlord.
Retail Lease Legislation
One of the legislation’s primary purpose is to protect smaller business owners. This is achieved by enforcing a set of minimum standards to ensure that the lease is fair to each party but still allows a reasonable amount of freedom to negotiate the terms. Below is a list of the legislation each state/territory has enacted to protect retailers:
- Australian Capital Territory: Leases (Commercial and Retail) Act 2001 (ACT)
- New South Wales: Retail Leases Act 1994 (NSW)
- Northern Territory: Business Tenancies (Fair Dealings) Act 2002 (NT)
- Queensland: Retail Shop Leases Act 1994 (QLD)
- South Australia: Retail and Commercial Leases Act 1985 (SA)
- Tasmania: Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas)
- Victoria: Retail Leases Act 2003 (Vic)
Does it Apply to my Premises?
The Leases (Commercial and Retail) Act 2001 (ACT) has a comprehensive list of what is considered to be a retail premises that should also serve as a handy guide for other states/territories. Please note that some states have minimum lease periods or shop size limits that may mean your premises isn’t subject to the Act. For example, to qualify as a retail lease in NSW, the lease must be between five and twenty-five years and in a shop with less than 1000 square metres of floor space. Other factors that influence whether you’ll be subject to a retail lease include the store’s location (e.g. in a shopping centre), whether it’s part of a cinema complex or high rise building.
What You Need to Know
In some states, such as Queensland, you’re required to receive legal advice and financial advice before signing the lease if you own fewer than five retail businesses. If you’re an enterprise, this is less likely to apply but is still helpful to understand.
Each state/territory requires landlords to provide disclosure documents to tenants before they enter a retail lease. These documents provide a summary of the lease and contain other information about the property, previous outgoing expenses and other information relevant to the premises (e.g. foot traffic in a shopping centre).
A ‘registered lease’ refers to a lease that has been registered on the title of the property at the state/territory Land Titles Office. By registering your lease, you create an interest in the property which is known as a leasehold estate. An example of when this would be beneficial is if your landlord defaulted on their mortgage repayments and the bank foreclosed the property. While the bank has a first right to the property through the registered interest of the mortgage, a registered lease demonstrates your right to occupy the property.
Another example would be when your landlord sells the property to a third party. If the lease is registered, then the change in proprietary interest won’t affect the rights of your enterprise under the terms of the existing lease. Some states will require your enterprise to register a lease if the term exceeds a particular period (generally three years). If the lease period is for a shorter term, then you’ll typically receive automatic protection.
The Importance of Dispute Resolution
Your time is valuable. While you may have the resources to take legal action against a landlord if a dispute arises, this can be an inefficient use of your resources, result in additional costs and potentially give your enterprise a poor reputation among commercial property owners. Not only can it be costly from an administrative perspective, if a lease is terminated due to a dispute you’ll also have to pack up your store, relocate, setup again and reopen. During this time you’ll incur moving costs and also have to contend with the lost opportunity of sales during the move.
Instead of resolving your dispute through litigation, or terminating the lease, you should consider including a process of alternative dispute resolution in a lease. A common first step is to require parties mediate. An independent mediator will sit down with a representative of your enterprise and assist you to try and workout a compromise. It is usually in the best interests of both parties to resolve your dispute early (your landlord won’t want the shop unoccupied), and a dispute resolution clause can save you time in the future.
A variety of state-based laws governs retail leases. While your enterprise will be more business savvy than your standard retail operator, you should be aware of the change in requirements across each state and how you can reduce the risk of unnecessary costs. Questions? Get in touch with our commercial lawyers on 1300 544 755.