How Victoria’s Retail Definition Operates in Practice
Shayne Savage:
Because Victoria includes providing services to the ultimate consumer within its definition of a retail shop, this can significantly broaden the scope of leases that fall under retail legislation.
That means businesses such as medical practices, car repair services, service stations, accounting services, and even warehouses may be captured as retail premises under Victorian legislation.
As a landlord, this can have a material impact on your rights and obligations under the lease, including limitations on outgoings recovery, disclosure obligations, and restrictions on certain lease terms.
This is why it is critical to identify whether a lease is retail or commercial at the outset, and to ensure the lease documentation reflects the correct classification.
This guide will help you to understand your options when you purchase a business with leased premises.
Bonds and Bank Guarantees
Shayne Savage:
Moving on to bonds and bank guarantees, these are commonly used as security for a tenant’s obligations under a lease.
A bond is typically a cash amount paid by the tenant and held as security. A bank guarantee, on the other hand, is issued by a bank and can be called upon by the landlord if the tenant defaults.
From a landlord’s perspective, bank guarantees are often preferred because they are easier to enforce and do not require holding tenant funds.
However, retail legislation in some states may limit the amount of security that can be taken or impose restrictions on how it can be used.
It is important to ensure that any security arrangements comply with the relevant retail legislation, where applicable.
Maintenance and Repair Obligations
Shayne Savage:
Maintenance and repair obligations are another key area where retail and commercial leases can differ.
In commercial leases, landlords often seek to pass more extensive repair and maintenance obligations onto tenants, including obligations relating to structural elements and capital items.
Retail legislation may restrict the extent to which these obligations can be passed on, particularly where they relate to the structure of the building or essential services.
From a landlord’s perspective, it is important to clearly allocate responsibility for maintenance and repairs in the lease, and to ensure those obligations are enforceable under the applicable legislation.
Make-Good Obligations
Shayne Savage:
Make-good obligations require a tenant to return the premises to a certain condition at the end of the lease.
This might include removing fit-out, reinstating walls or ceilings, repainting, or returning the premises to a base building condition.
Make-good clauses can be heavily negotiated and can carry significant cost implications for tenants.
Retail legislation in some states may limit the enforceability of make-good obligations, particularly where they are considered unreasonable or not properly disclosed.
For landlords, it is important to ensure make-good obligations are clearly drafted and consistent with any disclosure documents provided to tenants.
Incentives Offered to Tenants
Shayne Savage:
Incentives are commonly offered to tenants to encourage them to enter into a lease. These may include rent-free periods, fit-out contributions, or rent abatements.
Where a lease is classified as a retail lease, incentives may need to be disclosed in a disclosure statement provided to the tenant.
Failure to properly disclose incentives can result in penalties or give tenants rights to terminate the lease in some circumstances.
As a landlord, it is essential to ensure incentives are correctly documented and disclosed in accordance with the relevant retail legislation.
Key Takeaways for Landlords
Shayne Savage:
In summary, understanding whether a lease is retail or commercial is critical, as it affects the rights and obligations of both landlords and tenants.
Retail legislation can significantly limit a landlord’s ability to recover costs, impose obligations on tenants, and enforce certain lease terms.
Because each state has its own retail legislation, landlords should seek advice specific to the jurisdiction in which their property is located.
Getting the classification right at the outset can help avoid disputes, unexpected costs, and compliance issues down the track.
Closing Remarks
Shayne Savage:
That brings us to the end of today’s session.
Thank you very much for joining me. I’ll now move on to answering any questions that have been submitted through the Q&A box.
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