In New South Wales, the Retail Leases Act 1994 has undergone some significant changes that impact on the negotiation and drafting of leases for retail businesses. Retail leases differ to commercial leases and are covered under a different set of laws. Whether you are the lessee or lessor of a retail property, it is important to seek the advice of an experienced lawyer to ensure that your rights and obligations are adequately protected during the course of the lease.

Things to consider when you are the landlord for a commercial lease:

• Obtaining appropriate security on the lease. This may involve requesting a bank guarantee or cash deposit, which is usually to the value of three months rent.
• Whether the lessor or lessee is responsible for the fit-out of the premises and determining who will own the fit-out at the end of the lease, as well as determining who is responsible for refurbishing the premises at the end of the lease.
• As most commercial leases exceed three years (including options to renew) this means they need to be registered with the NSW Land Titles Office. In order to register, consent must be obtained from your mortgagee for the lease.
• General landlord duties in terms of maintenance and access of common areas, lobbies, lifts, toilets, and related areas. Do any strata levies apply? What are the rules and guidelines for the building?

What's a commercial lease?

A business property lease or commercial lease is a legally binding contract between a business owner and the owner of the property. The documents involved with commercial and retail leases tend to be more complicated than residential leases, as the lease is usually heavily customised to each property. As a result, the lease terms and conditions need to be reviewed very carefully, to ensure that it is fair for both the business owner and the owner of the property.

A commercial lease provides the lessee with a right to exclusive possession and use of the property for the purposes of running a business, amongst other things. There are several types of leases available to businesses that depend on whether or not they are classified as retail or commercial. The two classifications have many similarities, but there are also legal differences between the two, such as different requirements as to the terms and length of the lease, as well as the payment of fees.

Most commercial leases will take into account the following criteria that should be negotiated between the landlord and tenant (lessor and lessee) and incorporated into the documentation:

• Rental payments: how much and when to pay
• Commencement date of rent period, depending upon completion of fit out and obtaining relevant approvals for business etc
• Outgoings payable by the landlord or the tenant
• Options available for renewal and how/when to exercise the option
• Maintenance: landlord is generally responsible for structural repairs and tenant for day to day maintenance of premises
• Use: what the premises can be used for and the type of business permitted etc
• Assignment/Subletting: whether the landlord gives consent and what approval procedure is in place
• Insurances required
• Term of the lease
• Obligations of each party at the end of the lease

Special Considerations for Retail Leases

Retail leases are governed under a unique set of rules separate to other commercial leases. Whether you are a retail landlord or tenant, it is important to seek advice from a legal expert in order to ensure that your rights and obligations are adequately taken care of.

Some of the most important changes to the Act affecting retail leases include:

• The definition of, and what constitutes, a ‘retail’ business a great number of businesses fall into the category of retail business and are therefore covered by the Act.
• There are greater obligations for lessors and agents to disclose and provide information to lessees quickly when entering into negotiation of a lease and during the term of the lease.
• A new section of the Act has been written to deal with misleading or deceptive conduct by either party to a retail lease.
• Independent retail valuers will be used to determine rent reviews in the event that both parties cannot agree on the actual rent.
• More detail is required from lessors in the disclosure statement relating to disturbances, which might interfere with the lessee’s operations if they are to avoid liability (whereas, before, a lessor only had to provide written warning of a likely disturbance to avoid responsibility).
• There are new provisions for fit outs and how their costs are dealt with between lessor and lessee.
• There are new restrictions regarding the advertising of available retail space to new tenants, unless the lessor has specifically offered a renewal or extension to the existing lessee and it has been refused.
• The old security bond system has been replaced and now requires payment of a bond to the Office of the Small Business Commissioner.

Whether you are a commercial or retail lessor or proposed lessee, at Bazaliza Lawyers we can provide you with assistance for matters to deal with retail and commercial leases. Before entering a lease it is important to seek legal advice.