RETAIL LEASES


What legislation governs Retail Leases?

The Retail Leases Act 2003 (“Act”) is the principal act. It applies to all Retail Leases entered into or renewed on or after 1st May 2003. Prior legislation may govern pre-May 2003 Retail Premises Leases.

What are Retail Premises?

The Act defines Retail Premises as premises, not including any area intended for use as residence, that under the terms of the Lease are used or are to be used solely or predominantly for:-

(a) the sale or hire of goods by retail, or the retail provision of services, or

(b) the carrying on of a specified business or kind of business specified by the Minister.

“Retail” means the provision of goods or services to the ultimate consumer.

It is not possible to prevent premises being retail premises by saying the use permitted under the Lease is non-retail when in fact the use will be retail.

Are there any exceptions to what constitutes Retail Premises?

Yes, the following are not Retail Premises:-

- premises the occupancy costs (rent and outgoings) of which exceed $1 million per annum;

- premises used wholly or predominantly for carrying on a business by a Tenant on behalf of a Landlord;

- premises the Tenant of which is listed corporation or a subsidiary of a listed corporation;

- premises the Tenant of which is a company whose securities are listed on Australian Stock Exchange;

- premises which the Minister determines not to be Retail Premises. These include premises on or above the fourth story of a building, premises subject to a fifteen years or longer lease where the Tenant is obliged to carry out substantial works involving the building, or repair of the premises, barrister’s chambers and Melbourne Market Authority premises.

Is a Lease for less than one year subject to the Act?

The answer is no – a lease for less than one year is not subject to the Act but if as a result of the Lease being renewed or continued the Tenant is continually in possession of the premises for more than one year then the Act applies from the day the Tenant has been continuously in possession for one year.

Does “Lease” include Sub-Lease?

The answer is yes. “Lease” includes Lease, Sub-Lease or Agreement for Lease or Agreement for Sub-Lease whether or not in writing.

Is there a minimum Lease Term for a Retail Premises Lease?

Yes. A Retail Premises Lease must provide for a minimum five year term but:-

- any option period is counted in the five years

- if the Lease is a renewal of a prior Lease and there has been no break in the Tenant’s entitlement to possession then the term of the prior Lease is taken into account in establishing the five years.

What happens if the Lease does not provide for five years tenancy?

The Lease is still legal but the Act extends the term so as to give five years tenancy.

What if both the Tenant and the Landlord want a Lease of less than five years?

The Tenant can obtain from the Small Business Commissioner a certificate stating that the five year requirement does not apply. In that case the lease may be for the agreed lesser period.

If I am a Landlord, what steps must I take before the Lease is entered into?

As soon as Lease negotiations start, the Landlord must give the prospective Tenant a copy of the proposed Lease (not necessarily including the rental or term, or tenant’s name) and a copy of the Small Business Commissioners Information brochure about Retail Leases.
Then, at least seven days before the Retail Lease is entered into the Landlord must give the Tenant a Disclosure Statement in the form prescribed by the Regulations and a copy of the Lease.

If the Disclosure Statement is not given the Tenant may between seven and ninety days after entering it, give the Landlord written notice that a Disclosure Statement has not been given. The Tenant may withhold rent until a Disclosure Statement is given and is not liable to pay rent for the period between the notice and the receipt of the Disclosure Statement and may give a Notice of Termination of the Lease. If the Tenant gives a Notice of Termination then the Landlord has fourteen days to object. If the Landlord fails to object the Lease terminates fourteen days after the Tenant gives the notice.

Notification to Small Business Commissioner

Within fourteen days after a Lease is signed by all parties the Landlord must notify details of the Lease to the Small Business Commissioner. There is no specific penalty for failure to do so.

What disclosure is required on renewal of a Retail Premises Lease?

“Renewal” means renewal under an option or under an Agreement to Renew on similar terms, except as to rent.

If a Lease is to be renewed the Landlord must at least 21 days before the term ends give the Tenant a current Disclosure Statement. Failure to give the Disclosure Statement gives the Tenant the same rights as failure to give a Disclosure Statement at the start of a Lease.

Options to Renew

If a Lease contains an option to renew, the only circumstances in which the option is not exercisable is if the Tenant has not remedied any default which written notice has been given

or

the Tenant has persistently defaulted under the Lease during the Term and the Landlord has given the Tenant written notice of the default.

The Landlord is required to notify the Tenant of the last day for the exercise of the option at least six months but not more than twelve months before that date. If the Landlord fails to give the required notice:-

- the option remains exercisable for six months after notice is given; and

- the lease (if necessary) is extended.

The second part of this article will appear later this year. So will a guide to the avoidance of Lease problems.

The information in this newsletter is general. It must not be relied on without first obtaining specific advice from Henderson & Ball.

For Information about Henderson & Ball visit www.hendersonball.com.au

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