Retail leases for hairdressers are a substantial financial commitment. Subject to the terms of the lease, a landlord will be under no obligation to reduce your rent or cut your contract short if your salon is not doing well. In Australia, state legislation in part covers retail leases for hairdressers. Under the relevant state retail lease legislation, your landlord will have certain obligations with which they must comply. We set out below your landlord’s duties and the terms you should look out for in your retail lease.
Obligations of Landlord and Tenant
In NSW, the Retail Leases Act 1994 (NSW) (the Act) regulates legal arrangements between the landlord and tenant. The Act offers some protection for the tenant, including:
- Prohibiting the landlord from charging key-money (i.e. money similar to a premium or surcharge);
- Prohibiting “lease preparation” fees or goodwill; and
- Regulating what is to occur in the event of a dispute.
Before signing your lease, check with your local council to determine whether you need “development consent” to operate your salon. If this is the case, the landlord may incorporate a special provision in the lease that subjects the granting of the lease to council approval.
The term will dictate the duration of your lease and determines how long your salon will be able to operate on the landlord’s premises. The lease must include the term, and it may also include an option for renewal or extension of the lease. Renewals or extensions will be subject to non-breach of your original term.
Under section 16 of the Act, the minimum lease in NSW runs for five years (including option periods). You can reduce the minimum time by giving notice (signed by your lawyer or conveyancer) to the landlord saying you agree to the shorter duration. At renewal, you will not be required to extend for a minimum of 5 years.
“Permitted use” defines the type of business that you will be allowed to operate from the premises. It is essential the permitted use of the premises is broad enough to enable you to carry on your salon unhindered. You should ensure that the permitted use does not restrict you from adding additional business activities to your salon in the future.
For example, you may wish to expand your service and incorporate other beauty treatment services such as nails, massage or aromatic therapy. Your permitted use should then specify: “Hair and beauty salon including beauty treatments”. If it only specifies “Hairdressing”, the beauty treatments would be in breach of your lease and could result in termination of the lease.
You will also need to obtain the landlord’s and council’s consent for the relevant business activities. If you are taking over someone’s lease, you will need to check personally with the council to make sure that approvals are in place. It is essential you retain approvals in writing.
Under the Act, the landlord cannot charge you with the costs of preparing the lease. You will, however, usually have to pay for any registration and mortgagee consent fees.
Rent and Rent Review
It is important you are clear of the dates that rent is due and the method of payment. Further, there may be notification obligations in the event you need to make a late payment.
Retail leases for hairdressers usually include a clause that addresses when and how a landlord will review and increase the rent payable under the lease. A rent review takes place once a year on the anniversary of the lease using the method defined in the lease.
Shopping Centre Leases
Many salons operate in a shopping centre. If your salon is in a shopping centre, there are additional points to remember. For example, you may be required to contribute to the cost of advertising of the shopping centre, known as the “promotion levy” and payable on top of your rent and other outgoings.
It is also essential you check the trading hours of the centre. As a salon, your hours of operation may be early or late, and there may be penalty fees for opening early or closing late in centres. You will then need to consider whether it is worthwhile to pay the penalty.
Under section 42 of the Act, the landlord has the right to refuse a subletting application at their discretion. It is not uncommon that a salon subleases the premises to another individual hairdresser.
Accordingly, if you have plans to sublease your salon in part to another hairdresser or beauty therapist, you will need to review whether there is a prohibition in the lease. It may be worthwhile speaking to a lawyer to negotiate the right to sublet on your behalf. This will ensure you have greater flexibility in the future.
Maintenance of the Premises and Make Good
The tenant will be responsible for cleaning and the day-to-day maintenance of the salon. The landlord will only be responsible where structural repair is required. You should note whether the lease contains any “make good” requirements that describe how you are to hand back the premises.
You may also need to address terms regarding renovation and refurbishment. Prevalent in shopping centres, leases may require you to refurbish the premises at regular intervals. Although this may be aesthetically beneficial for your salon, it is also quite costly, and you should ensure your lease clearly sets out the nature, timing and extent of the refurbishment.
When you sign a retail lease, you are signing up to a binding agreement with the landlord. It is important that you understand your obligations under the lease and ensure that you have a lease which is clear and reflects your needs. Remember, state legislation applies to your lease, and it is sensible to obtain legal advice if you have any questions. If you need assistance with drafting or reviewing your salon’s retail lease, get in touch with our commercial leasing lawyers on 1300 544 755.
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