In NSW, the Retail Leases Act 1994 is the governing authority on retail shop leases between the lessee (the tenant) and the lessor (the landlord), and contains the rights and obligations of both parties. Retail shop tenants and landlords must abide by the legislation when entering into leases, and conduct themselves in accordance with Act during the period of the lease. The Act operates despite the terms of any existing retail shop lease; if it is inconsistent with the Act, then the lease is void.
What Is a Retail Shop?
Under the Retail Leases Act, a retail shop is a premises that:
- is used, or to be used, mainly for the operation of a business listed in Schedule 1 of the Act
- is used, or to be used, for any business in a retail shopping centre.
What Isn’t a Retail Shop?
The Act excludes particular retail shop leases, including:
- shops that are greater than 1,000 square metres,
- shops used mainly to do business by the tenant, on behalf of the landlord
- any cinema, bowling alley or skating rink
- a premises in an office tower that is part of a retail shopping centre
- leases for a term of 25 years or more
- shops for a term of under 6 months, where extension of the term is not permitted in the lease.
Important Parts of the Act
Before Entering a Lease
Under the Act, a landlord must provide a prospective tenant with a Retail Tenant’s Guide (in printed form), so they are aware of their rights before they enter negotiations of the lease. At the negotiation stage, it is a good idea for the landlord to provide the tenant with a Heads of Agreement, which is a legally non-binding pre-cursor document that records the proposed terms of the lease. The Act requires the landlord provide the tenant with a copy of the lease, so they can review it before signing.
Disclosure Statement
It is vital to have lessor and lessee disclosure statements in order to express the parties’ obligations under the lease. The essential items in a disclosure statement can be found in Schedule 2 of the Act. The disclosure statement contains important details on the premises, term of the lease including options (if any) to renew the lease, refurbishments and maintenance of the premises, and costs.
Ensure your retail lease agreement complies with the Retail Leases Act 1994 (NSW) by speaking to a business lawyer.
Dispute Resolution
The Act contains it’s own process for resolving disputes between a tenant and landlord. Parties to the dispute are required to attempt to resolve the tenancy issue through mediation first. The Registrar of Retail Tenancy Disputes needs to certify that mediation has not worked before parties have the ability to enter court proceedings.
Changes to the Legislation
Major changes to the Retail Leases Act in 2017 that affects tenants and landlords:
- The minimum 5 year lease term is now no longer necessary. This is so tenants with businesses that fail early aren’t stuck paying for the rest of the 5 years.
- Landlords now have to return the tenants bank guarantee (security bond) within 2 months of the end of the lease. This is another amendment to protect the tenant because it means that landlords can’t indefinately hold onto their deposit.
- The outgoings listed in the disclosure statement have to now be more accurate to comply with the new amendments.
- There is now a timing obligation for the landlord to provide a copy of the signed lease to the tenant within 3 months of recieving it from the tenant. The landlord must also lodge the lease for registration in this timeframe.
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