If you are a retail tenant in New South Wales (NSW), there are a number of rights and protections that you should be aware of. These include rights relating to:
This article will explain these rights and how you can access them to save time and money.
At least seven days before you enter into a retail lease, the landlord must provide you with a disclosure statement. A disclosure statement contains important information to help you decide whether you want to (and can afford to) lease the premises for your business. This information includes:
- how much money you will have to pay to use the premises (e.g. rent and outgoings);
- whether there is any equipment on the premises that you can use (e.g. air conditioning, electricity and water supply);
- how you can use the premises and whether this use is exclusive to you (e.g. you may use the premises to run a hairdressing salon, and you will be the only salon in the centre);
- how long the lease will run for (e.g. three years with an option to renew for a further three years); and
- whether you or the landlord will be required to carry out any fit-out works (e.g. replacing the carpet or repainting the walls).
Rights for Retail Tenants
Two of the main rights for retail tenants in relation to disclosure include:
- not needing to pay for any finishes, fixtures, fittings, equipment or services unless the landlord included these costs in the disclosure statement; and
- the right to terminate the lease within the first six months if the disclosure statement is incomplete or contains information which is false or misleading.
Landlord’s Legal Expenses
The landlord will likely use a lawyer to prepare the retail lease and disclosure statement on their behalf. However, if you are a retail tenant, the landlord cannot pass on their lease preparation expenses to you. If you request amendments to the lease, you may need to pay for certain negotiation expenses but only after receiving evidence of the expenses to the landlord. However, these benefits do not usually apply to commercial tenants, who may need to pay for lease preparation and negotiation expenses in full, unless negotiated otherwise.
Regardless of whether a lease is retail or commercial, it must specify:
- how much rent you have to pay;
- how your rent will be reviewed; and
- when your rent will be reviewed.
The most common rent review methods include:
- fixed percentage increase;
- adjustment according to Consumer Price Index; and
- current market rent.
These reviews are usually scheduled to take place on the yearly anniversary from when you started your lease. However, if you are a retail tenant, the rent cannot change for the first year of the lease. Furthermore, the landlord cannot change the rent until a year has passed since the last change.
Option to Renew
Not all leases have an option to renew, especially if the premises are located in a retail shopping centre. However, if you do have an option to renew, the lease must specify:
- when you have to notify the landlord that you want to exercise this option; and
- how the landlord will review the rent during the further term.
If the lease states that the landlord must calculate the rent for the further term based on the market rent, this review is usually scheduled to take place on the first day of the next term. This timing is not ideal because it means that you will not know how much rent you have to pay before you provide your notice to renew the lease to the landlord.
Rights for Tenants
Fortunately, the law is beneficial for retail tenants who find themselves in this situation. It states that you are entitled to request an early determination of the current market rent between three to six months before you must give your notice. The last day for giving your notice is then extended by 21 days once you know how much rent you will have to pay. This means that you have 21 days to decide whether to:
- provide notice and exercise your option for the further term; or
- allow the further term to lapse and for the lease to expire.
A market rent review means that the rent should be able to increase or decrease depending on the local market at the time. However, some retail leases contain clauses which prevent the rent from being lower than it was before the review. These clauses are known as ratchet clauses and they benefit the landlord because it means that the rent can only ever increase. However, these clauses are illegal. Any clause which prevents the landlord from decreasing the rent is void. This means that it will be possible for the rent to go down based on the local market.
If you are a retail tenant in NSW, retail leasing laws contain a number of benefits, including the right to:
- disclosure before entering into the lease;
- avoid paying the expenses of the landlord;
- a fixed rent for the first year of the term;
- have the current market rent determined early; and
- ensure that the rent can decrease where appropriate.
It is important to be aware of these benefits because your lease may include a clause which is contrary to the law. If you have any questions about these rights and whether you can access them, you can contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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