You must consider all aspects of your business requirement before deciding to acquire a property on lease. Signing a Retail Lease Agreement is a financial commitment for both the Lessee and the Lessor. So before you sign a lease, make sure you have completely understood and agreed with the clauses in the lease. Legislations concerning retail lease vary from State to State.

This article will give you an overview of the main provisions of the Retail Lease Act 1994 prevailing in New South Wales (NSW).

The Retail Lease Act, 1994 (the Act) applies to the leases for retail shops and also for premises in a retail shopping centre. Here is a brief summary of the Act:

Disclosure by Lessor

Before a Lessor advertises a retail shop for lease, the Lessor must have a:

(a) Copy of the proposed lease; and

(b) Copy of the Retail Tenancy Guide

Available for inspection by the prospective Lessee. A disclosure statement must be given to the Lessee by the Lessor, 7 days prior to the lease agreement. This disclosure statement confers all the essential terms of the lease as well as any representation made by the Lessor or by the Lessor’s agent to the Lessee.

Terms of lease

The Act does not apply to leases for a term of less than 6 months. However, when a Lessee occupies a retail shop for more than 1 year, either by a series of consequential short term or under the holding over provisions of a 6 month lease, the terms of the Act come into effect.

Security bonds and security deposits

This sum of money is required by a Lessor to secure the performance of the Lessee’s obligations and it is normally about 3 months’ rent, depending on the length of the lease term. However, the Lessor must deposit the security received for retail shop leases, with the Director-General of the Department of State and Regional Development within 20 days of such receipt.

Up-front fit out costs

The Lessor can sometimes ask the Lessee to contribute to the cost of fixtures, finishes, fittings and equipment of the premise. This contribution may be payable as a lump sum amount prior to the commencement date of the lease, or by the way of periodic contributions in addition to the base rent. However, the maximum amount payable by a Lessee for works conducted by a Lessor to enable the Lessee to fit out premises must be agreed in writing between the Lessor and the Lessee before a lease for the premises is entered into. A Lessor cannot require a Lessee to pay more than the agreed maximum amount.

Outgoings

It is a charge by a Lessor in addition to the rent. Outgoings are specific to the lease where they apply directly to the premises such as water rates, council rates and land tax.

Market Rent Reviews

The adjustment of the base rent during the term of lease may be subject to a market rent review. The Act sets out the procedure for determination of market rent under Section 32A. The lessor and lessee may apply to the Tribunal for the appointment of two specialist retail valuers. The valuers will conduct a review and determine the current market rent accordingly.

Relocation

Lessor will have additional obligations to pay the Lessee reasonable fit-out costs and legal costs for relocating premises, if the Lessor has proposed to relocate the Lessees during the tenure of lease. A 3 months relocation notice needs to be served to the lessee by the lessor prior to relocation.

Assignment of lease

The Lessee may wish to assign a lease to another person during the term of the lease with due consent from the Lessor. The time period within which a Lessor must make a decision with regard to the proposed assignment is 28 days.

Advertising

Lessors must provide details to the Lessees every 6 months regarding the promotions or advertising levy imposed on the Lessees. Lessees are entitled to withhold contribution of payments in respect to advertising or promotion, if a statement with the above details is not provided by the Lessors.

For a comprehensive and well drafted lease agreement, the Lessors and the Lessees should familiarise themselves with all the provisions stated above. Our team of experts are adroit in drafting lease agreements. For any assistance, contact us at Owen Hodge Lawyers.

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