A retail shop lease in New South Wales will likely be subject to the Retail Leases Act 1994 (the Act). The Act deals with, amongst other things, the rules surrounding the landlord-tenant relationship under a retail shop lease. One thing that all tenants should have a clear understanding about is the obligations under a lease agreement with which a tenant must comply upon entering into the lease agreement. Regardless of whether the tenant understood what they were entering into, these obligations will still apply. For this reason, it is extremely important that a leasing lawyer, and perhaps even a financial adviser where money is an issue, be consulted prior to signing anything.

This article will provide some assistance to prospective tenants by summarising some of the key principles highlighted in the Act that relate to the rights of the tenant.

What does the Act cover?

The Act will cover almost every type of retail business that you can think of. There are, however, several important exclusions that should be noted. These exclusions include:

  • Shops that have an area of, or greater than, 1000 square metres; or
  • A lease that has a term of 25 years or more.

If you are unsure as to whether your lease falls under the Act, contact your leasing lawyer to find out.

When does a retail shop lease commence?

If your lease agreement between you and your landlord does not fall within the scope of the Act, its commencement date will be the date on which you and the landlord agree for the lease to begin. Retail shop leases, on the other hand, will start prior to singing the lease agreement in circumstances where you start paying rent or have already taken possession of the site from which you will operate your retail shop.

One thing you need to make sure of is that you receive a Lessor’s Disclosure Document. If the lessor does not give you a disclosure document, or the disclosure document you received contains some misrepresentation, you will have the right to terminate the agreement in the first 6 months of the Lease Agreement after providing written notice to the lessor.

What both parties do before entering the lease

Under the Act, it is a requirement that the landlord (or his or her agent) produce a written copy of the lease agreement to provide to potential lessees before going ahead with advertising the property as up for lease. This allows prospective lessees to review the terms of the retail shop lease from the very outset. If the landlord does not comply with this requirement, they will be committing an offence under the provisions of the Act.

Furthermore, prior to entering the lease, the landlord ought to provide you with a Lessor’s Disclosure Statement. This outlines the terms of the lease along with a Retail Tenant’s guide.

In the same fashion, lessees are required to provide lessors with their own version of the Disclosure Statement. This must be provided within a certain timeframe after the lessee receives the lessor’s Disclosure Statement. Otherwise, this period may be extended if the contracting parties agree to do so. The form of these disclosure statement is regulated by the Act and is made available online from the Department of Fair Trading NSW. The Retail Tenant’s Guide is also provided by the Department of Fair Trading and is also available online.

What is the minimum term of a lease under the Act?

Retail shop leases should normally run for at least 5 years. If, however, the parties wish to have a shorter lease term, the lawyer must explain how the provisions of the Act operate, and you, as the prospective tenant, must give the landlord a section-16 certificate. The section-16 certificate acts as a waiver of the minimum 5-year period. According to recent developments to the Act, when many consecutive short-term leases total more than 12 months, you may be entitled to ask for a 5-year retail shop lease.

Conclusion

To read more about your rights as a tenant in a Retail Shop Lease, click here for part 2. If you need assistance with reviewing or drafting a lease agreement, either as tenant or landlord, contact LegalVision on 1300 544 755 and ask to speak with one of our experienced leasing lawyers.

Lachlan McKnight

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