Commercial leases can apply to three types of premises: retail (such as shops), commercial (such as office space) and industrial (such as factories and warehouses).

Though the Conveyancing Act normally regulates leases regarding these types of premises, Retail Shop Leases will also be regulated under the Retail Leases Act. The Act creates an additional level of regulation for retail premises, further regulating the relationship between tenants and landlords and offering tenants greater legal protection.

The Retail Leases Act applies to any premises conducting business in a retail shopping centre. Additionally, it covers specific ‘Scheduled’ businesses, regardless of them being in a shopping centre.  These typically include convenience stores, hairdressers, grocers, newsagencies, pharmacies, second-hand goods stores etc.

If you are uncertain whether a particular business falls under the Retail Leases Act, please Contact Galluzzo Lawyers for advice.

Some of the major differences between a regular commercial lease and one under the Retail Leases Act include:

Section 9  requires the landlord to provide the tenant a copy of any proposed lease during negotiations.  In regular commercial leases, the landlord would not normally provide any draft lease.

Section 11  requires the landlord to provide the tenant with a summary document. This is known as a Lessor’s Disclosure Statement. It outlines important matters such as outgoings estimates.  Such a Statement is not required for ordinary commercial leases.

Section 14  prohibits the costs associated with preparing the lease from being passed on to the tenant.

Section 16 makes it mandatory for the landlord to lodge their security deposits with the NSW Small Business Commissioner.

Section 17 to 32 provide tenant’s with various protections regarding rents payable and the outgoings recoverable by a landlord.

Normally, the landlord of commercial or industrial premises will require the tenant to pay all legal costs and disbursements associated with the preparation of the Lease. This usually includes title search fees, registration fees, and mortgagee consent/ production fees.

Regarding retail leases, however, landlords cannot charge tenants for any costs involved in preparing a retail lease document.  The landlord can, however, pass on the costs of any amendments to the lease requested by the tenant, as well as any disbursements for registering the lease.

No stamp duty is payable on Leases.

Ultimately, landlords can charge any amount they want. No restrictions exist which limit the amount of rent that may be charged upon commercial and industrial premises, though market forces will naturally restrict extremely excessive rent.

During the term of the Lease, however, rent can only be increased in accordance with the rent review provisions outlined in the Lease. Retail leases, however, do have statutory restrictions on rent increases, such as prohibiting the use of ratchet clauses.

Rent is normally reviewed annually.  The most common methods of doing so is to increase rent yearly by a fixed percentage, either in reference to the Consumer Price Index or under market review. A market rent review involves a determination of the amount of rent payable by analysing what rent would most likely be if a new tenant were to enter into a new lease.

Parties should always negotiate and attempt to come to an agreement as to the new rent before the market review date.  If parties cannot agree, most leases provide for an independent valuer to assess the premises and calculate a market review figure. Whatever the valuer determines is binding. The costs associated with engaging a valuer are often borne by the tenant.

For retail lease tenants, Section 32 of the Retail Leases Act allows tenants to demand that the new market rent be determined before they have to choose whether or not to exercise an option.

If a tenant validly exercises an option to renew, then the landlord and tenant must enter a new lease for the additional term.  These leases are generally identical to the original lease document but do usually contain amendments, most typically a new rental amount.

Normally, a tenant must serve on the landlord a formal notice of their intention to renew the lease before the lease expires. Many leases require that such a notice be issued months in advanced. Not strictly adhering to the Lease can result in a tenant losing their option to renew the lease and can force them to vacate the premises. Galluzzo Lawyers recommends engaging legal professionals when renewing a lease to ensure that the option is successfully completed and also to negotiate more favourable terms for any new lease.

A tenant is usually required to pay outgoings on top of their rental payment obligations.  Outgoings typically include council rates and charges, water rates and charges, land tax, cleaning/ maintenance costs and (where applicable) strata levies.

The Lease will contain terms as to who is responsible for paying what outgoings.

The Retail Leases Act contains some restrictions on the recovery of outgoings by a landlord from a tenant.

Landlords typically require security to protect them from possible loss due to a defaulting tenant.  Such a security is normally provided via one of two ways: a payment of cash known as a security deposit or a bank guarantee issued by a bank or other financial institution which acts as consideration guaranteeing that the bank will provide the landlord with payment of the promised sum should the guarantee be presented.

A bank guarantee is often favourable for tenants as there is no cash in the hands of the landlord.  As non-retail commercial leases do not require the landlord to lodge any deposits with a government authority, bank guarantees prevent landlords using cash deposits improperly.

The downside to a bank guarantee is that the financial institution will often themselves require a cash deposit to support their guarantee, often charging fees in the process as well.

Retail Leases
Under s 16 of the Retail Leases Act all retail leases for a term of longer than 3 years must be registered within 3 months of the lessor receiving the executed lease.

Commercial Leases

Section 53 of the Real Property Act 1900 (NSW) requires leases of more than 3 years to be registered.

Section 23D(2) of the Conveyancing Act 1919 (NSW) allows equitable interests to be created from equitable leases under Torrens Title. This means that an unregistered lease is not unenforceable or void. There is still a written agreement in place, and in most cases this should continue to bind the parties as long as the landlord remains landlord of the property it will nonetheless give rise to an equitable lease.

If an agreement to a lease remains unregistered, there is no legislated penalty, however indefeasibility of title will not be granted.  Indefeasibility means that the instrument (in this case a lease) has a legally recognised priority interest or ownership regarding that property.

The implications of not registering a lease for landlords are negligible, but they can be quite serious for tenants. For example, if the Lessor sells the property with an unregistered lease, the Purchaser may not be required to honour any renewal options. Additionally, should a bank or mortgagee ever take possession of the leased property, they would only be required to recognise a registered lease. Hypothetically, a bank could force an unregistered tenant to vacate the premises if they took legal possession from the Landlord.