If you are entering into a retail lease for a shop premises, you should receive a lessor’s disclosure statement. The disclosure statement is effectively a summary guide of the important commercial terms of the lease. The disclosure statement intends to give you a snapshot of what your financial obligations are regarding the following:
- Rent review
- Any other costs associated with the lease
- Tenancy mix (if in a shopping centre); and
- Important key provisions of the lease such as those relating to the likelihood of relocation and/or demolition of the premises.
After you receive a disclosure statement, you should engage a lawyer. Below, we set out what the disclosure statement contains as well as your obligations.
When Does the Lessor Give You a Disclosure Statement?
In the ordinary course of commercial leasing, your first point of contact will be the agent who is responsible for giving you an offer (often known as a ‘letter of offer’) which sets out the agreed key commercial terms. Once you reach an agreement on the letter of offer, you will then be put in contact with the lessor’s solicitor who will issue you with a disclosure statement and lease document. At this point, you should either seek legal advice on both documents or at least carefully review the disclosure statement to confirm that all the information is correct. In NSW, QLD, VIC and WA, the disclosure statement must be provided to you at least seven days before you are expected to enter into the lease (in the ACT, this must be given at least 14 days before you enter into the lease).
What to Look For in the Disclosure Statement?
The disclosure statement sets out the financial obligations of the lease such as rent, rent review method and the dates that the rent review will take place as well as any other financial obligations (or incentives) that apply to the lease. You will have the opportunity to review the itemised outgoings figure to give you an idea of the additional costs per month on top of your rent. The lessor must also state your proportion of outgoings. You should review the outgoings listed and ensure that you agree with them and seek any clarifications at this stage.
In addition to the financial obligations, the lessor must also state in the disclosure statement your positive obligations such as:
- Whether you are required to redecorate the premises and how often this is to occur;
- What you must do at the end of your lease (strip the premises bare or leave your fit out with the lessor’s consent);
- Any fit out works to be carried out;
- Whether the lessor will execute any works after the lease commences;
- What type of insurance you are required to take out;
- What form of security are you required to provide (bank guarantee, personal guarantee or both).
What Obligations do I Have Under the Disclosure Statement?
In NSW and the ACT, the tenant has an obligation before entering into the lease to sign and return a copy of the disclosure statement the lessor issued. In QLD, the tenant must have their lawyer sign a statement acknowledging they have received legal advice concerning the lease.
The disclosure statement is a document that the lessor provides and that sets out a summary of the major commercial terms of the lease. You should review this document carefully before entering into the lease. If you would like assistance in reviewing your disclosure statement and lease document, or have any questions about entering into your lease, get in touch with our commercial leasing lawyers on 1300 544 755.