A guide to retail shop leases

Retail shop leases

A “retail shop” is a premises in a retail shopping centre or a premises that is used wholly or predominantly for retail business.

A lease for a retail shop is governed by the Act except in certain situations, such as when the lease is for:

• a retail shop with a floor area of more than 1000 square metres;
• a retail shop leased from the South Bank Corporation and the lease is a perpetual lease or a lease of at least 100 years;
• premises in a theme or amusement park;
• a temporary retail stall at an agricultural trade show or a carnival, festival or cultural event;
• a site at a flea market, such as an arts and craft market;
• an automatic teller machine or vending machine; or
• storage or parking.

There is no minimum term for a retail lease.

Key considerations for retail shop leases

There are various key considerations for retail shop leases, including:

Disclosure statements

A landlord must provide a tenant with a disclosure statement at least seven days before the tenant enters the lease.

The form, structure and content of the statement is prescribed by the Act. A tenant (unless they are a “major lessee”) must give the prospective lessor copies of reports to confirm that they have received financial and legal advice before entering into the lease.

Money and ratchet clauses

A landlord cannot seek “key money” from a tenant in return for the grant, assignment or renewal of a lease. Also, any security deposit collected from a tenant must be refundable. A landlord also cannot include in a lease a “ratchet clause”, which prevents a reduction in rent.

Limits on payments

A retail shop lease must not require a tenant to make payments other than those required for rent, the landlord’s outgoings (including maintenance and repairs), damages for breach, indemnity for loss suffered, interest on arrears, and reasonable legal expenses.

Lease renewal

If the lease is for less than one year, the landlord must advise the tenant at least three months before the lease expires whether renewal is possible and on what terms. If the lease is for more than one year, the notification period is six months.

Marketing

If a landlord requires the tenant to make payments towards marketing, including promotions and advertising, they must provide the tenant with a marketing plan detailing the proposed spending at least one month before the start of the accounting period.

Payment of compensation

The Act provides for circumstances in which compensation will be payable by the landlord to the tenant. These include when the landlord has:

• caused a disturbance to the tenant’s business which restricts their access to the leased shop;
• taken action which restricts access by customers or the flow of potential customers;
• caused significant disruption to the tenant’s trading, or otherwise do not take all reasonable steps to prevent such a disruption;
• failed to rectify breakdown in plant or equipment that is under their care;
• neglected to clean, maintain or repaint the shopping centre or other premises as necessary; and/or
• made a false or misleading statement that the tenant relied upon in entering into the lease.

The tenant must give notice to the landlord of any loss or damage for which they want to claim compensation.

Unconscionable conduct

The Act prohibits the landlord (lessor) to a commercial lease from engaging in unconscionable conduct (i.e. conduct deemed so unreasonable that it defies good conscience). Indications that a landlord has engaged in unconscionable conduct can include:

• requiring the tenant to comply with unnecessary conditions;
• exercising undue influence, pressure or unfair tactics against the tenant;
• failing to disclose intended conduct which might affect the tenant;
• an unwillingness to negotiate; or
• failing to act in good faith.

If you need help with your retail shop lease

If you are a tenant or a landlord in a retail lease dispute, contact Gibbs Wright Litigation Lawyers today for a free and confidential consultation about your legal rights and options.