Commercial Retail Tenancy Agreements In Australia - NSW Retail Lease Law

Many Australian state governments have expanded their concept of consumer protection to include small business consumers who are bargaining on a playing field that is far from level, against owners of big shopping centres. They seek to provide this protection by making sure that prospective tenants have sufficient information to make a sound business decision about entering into or renewing a Retail Shop Lease Agreement.

Recent amendments to the Retail Leases Act of 1994 clearly offer further protection to tenants, the Government regarding them as the less powerful party in most retail leasing transactions. As a result, the Retail Leases Amendment Act 2005 requires greater responsibility and pro-active behavior from Landlord.

The Act does not apply to a shop with a lettable area of 1,000 square metres or more but will apply to a sub-lease of space in the shop if the space which is sub-let has a lettable area of less than 1,000 square metres. A lease for a term of less than six months (without any option of the lessee to renew) is excluded in NSW. A lease for a term of 25 years or more or with a shorter term but with options to renew which (if aggregated with the original term) is 25 years or more is excluded in NSW. There is some discussion as to whether void areas, such as, for example, stairwell areas and areas adjacent to mezzanine floors, are part of the lettable areas as they are not be used to provide the retail services for which the premises are dedicated even if you pay rent on them. Be safe: use the lease even if areas such as window planter boxes or car parks might extend the actual area over 1000 sq.m.

Disclosure statements
The Law in NSW is very clear: A landlord in a retail lease must not, in connection with the lease, engage in conduct that that is misleading or deceptive to a tenant or guarantor. A party who suffers damage by reason of misleading or deceptive conduct of another party may make a claim for compensation.

If a landlord fails to give sufficient information it is guilty of Unconscionable Conduct. At the disclosure stage, Landlords and their agents will now be required to provide a copy of a retail tenancy guide to any prospective tenant as soon as negotiations are entered into. The law requires the landlord to give the tenant a disclosure statement at least seven days before entering into the lease. Tough penalties apply if you don’t, or if the statement is inaccurate.

In particular, the Act renders void lease provisions which require any tenant’s payment for contribution to fit out that has not been disclosed in a disclosure statement. In most states law entitles the tenant, if she gives you the proper notice, to withhold payment of rent until the disclosure requirements are complied with (but any rent they do pay they can’t get back).

The only way a tenant cannot end the lease in case of inadequate disclosure is where:
(a) the landlord has acted honestly and reasonably and ought reasonably to be excused for the failure concerned, and
(b) the tenant is in substantially as good a position as the tenant would have been if the failure had not occurred.

If a lease is entered into by way of the renewal of a lease on the exercise of an option, a landlord should make a fresh disclosure statement.

Minimum lease period
To have a lease of less than 5 years In NSW you need a certificate that the tenant has received independent legal advice from a lawyer or conveyancer not working for the landlord about the limited term, otherwise the lease is deemed to be extended to 5 years.

For new leases you have to provide the tenant with a copy of the unsigned agreement (with the names and addresses of the parties included), a disclosure statement, and a government – prepared information brochure, the NSW the Retail Tenancy Guide. when negotiations are commenced, and in no case less than 7 days before the lease is entered into. (That is, negotiations have to go on for 7 days, you can’t just sign a tenant up on the spot).

A copy of the proposed lease has to be provided once it has been signed. The copies can be photocopies. If you don’t supply a full copy of the lease, or don’t do it within 28 days of it being signed, or the disclosure statement is wrong, the tenant can also end the lease.

The tenant doesn't’t have to pay for fit-out contributions if the liability to pay them is not disclosed in the disclosure statement.

Landlords may be kept on their toes throughout the duration of the lease with new powerful remedies for tenants to withhold payments when information is not provided on time.
This can particularly occur in the case of providing estimates or statements of outgoings. Strata levies are also to be included in the list of outgoings.

Registered Leases
In NSW you need to register a lease of over 3 years (including options) at the Nsw Department of lands - Section 53(1) of the Real Property Act 1900 (NSW) refers to a lease for a term exceeding three years. As the minimum term of a lease subject to the provisions of s16 is 5 years, you should register all leases in NSW.

Section 15 of the Act requires the lessor, in effect, to lodge promptly for registration under the Real Property Act 1900 a retail shop lease which is required to be registered. You don’t pay stamp duty on leases commenced after 1.1.2008.

In all states, provide the lessee with a copy of the Retail Lease Agreement promptly.

You can’t demand that a tenant pay you key money in NSW.

Rental Increases
In NSW, give the tenant at least 6 months notice of a market review and keep reminding them, in writing. NSW retail leases are limited to one rental increase a year by an amount which can’t be specified in the lease, but you can have as many fixed-sum or fixed-percentage increases as you like.

Outgoings
Landlords are required to provide a written estimate of all outgoings, before entering into the lease. This estimate must also be given to the tenant one month before the start of each accounting period, of the outgoings to which the tenant is liable to contribute under the lease, (including rates, taxes and shares of things like car parking contributions) otherwise the tenant doesn't’t have to pay them. If you want the tenant to pay for a share of your expenses (other than usual outgoings – such as marketing expenses) you have to provide an audited account.

You can’t ask your tenant for capital costs or interest on your loans. In NSW you can ask for some land tax and some (but not all) legal expenses but the calculation method is somewhat complicated. If you can’t calculate it in your base rent when you negotiate the lease, leave it out. In line with other states you can ask for reimbursement in respect of any assignment of the lease or a sublease, including investigating anyone’s suitability as a tenant.

Bond
Landlords or their agents may ask for a bond, or security deposit. In NSW the bond money must be lodged with the Director-General of the Department of State & Regional Development.

The tenant has the option to provide a bank guarantee instead of a security deposit however any security deposit must be held in an interest bearing account, the interest being added to and held with the principal.

Breaches of the agreement
In the event that the tenant breaches the terms and conditions of the Retail lease agreement, the landlord is required to give the tenant a notice of breach and at least 14 days to rectify the breach prior to the landlord entering the premises.

Renewal and Options to renew
In all states, if an option for renewal is not exercised at the right time it will be lost.
The tenant can exercise an option for renewal even if there has been a breach of the lease – generally the lease will set out the provisions for exercise of the option but in NSW refer to section 133E of the Conveyancing Act 1919.