In part two of “What are my rights as a tenant in a Retail Lease?” we will be exploring the consequences of misrepresentations, rights relating to fit-out costs, and whether a landlord may demand ‘key money’ in negotiating the terms of the retail lease.

Misrepresentations before signing

If either party misrepresents the other, they can become liable for damages for having induced the other party into agreeing to enter into the lease agreement. It is strongly advised that both parties to the agreement take extra precaution with the statements and representations they make to the other party to avoid such liability. This includes making sure that the lessor’s and lessee’s disclosure statements are factually accurate at the time they are made. In some cases, when the assertions in the Lessor’s Disclosure Statement are found to be untrue, the lessee will be entitled to terminate the agreement within the first 6 months of the lease term.

Fit-out costs and construction standards

It is not uncommon for the tenant and the landlord to come to some sort of arrangement where the landlord agrees to carry out works on the site that enables the tenant to fit out the premises to cater to the needs of the business. In most cases, the tenant will become liable for the costs of fitting out the premises.

Both parties should clearly communicate what kind of work is absolutely necessary for the lease agreement to go ahead. Clear communication will help to avoid disputes in the event that one party carries out work to which the other party claims they did not agree was part of the agreement. It also helps to avoid a situation where the works done on the premises do not match the tenant’s needs for the fit-out. Under the Act, the maximum amount of costs for any potential works is to be agreed in writing by both parties before the lease is signed. The Act seeks to protect a tenant from outlaying more than this agreed amount.

Lessors of a retail shop in a shopping centre should also keep in mind that they must provide a tenant looking to fit-out the premises with a ‘tenancy fit-out statement’ if they impose certain construction standards for the fit-out. The ‘tenancy fit-out statement’ must contain the relevant standard, and should be given to the tenant when they are provided the Lessor’s Disclosure Document or retail lease agreement. In general, tenants are not permitted to fit-out the premises to a standard that the landlord did not consent to.

Entitlement to ‘key money’

Under the Act, the term ‘key money’ refers to a ‘premium, non-repayable bond or otherwise… or any benefit in connection with the granting, renewal, extension or assignment of a lease’. According to the Act, any lease agreement that includes in its terms any demands for the lessee to pay the lessor key money, will be void to the extent that it breaches this part of the Act.

Conclusion

As a prospective tenant of a Retail Shop Lease, you have certain obligations that you owe to the landlord, but you also have certain rights as a tenant, which you should be aware of. The landlords of a Retail Shop Leases also owe certain duties to their prospective tenants. To get a better understanding of these rights and duties, it is worth speaking with a leasing lawyer to ensure you’re not inadvertently breaching any of the provisions under the Retail Leases Act.

To discuss your matter with one of our experienced leasing lawyers, contact LegalVision on 1300 544 755.

Lachlan McKnight

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