“Help, I’m a Commercial Tenant – Get Me Out Of Here!”

A commercial lease agreement is a legally binding agreement that is enforceable by law.

What is a commercial lease?
A commercial lease agreement is a legally binding agreement that is enforceable by law. A commercial lease sets out the rights and obligations of the owner of a commercial property (known as the landlord) and a third party that has agreed to occupy the property (known as a tenant).

What is the difference between a commercial lease and residential lease?
There are a few key differences between a commercial lease and residential lease:

  1. Commercial leases are generally for longer terms (commonly for terms between 1-5 years as opposed to 6-12 months for residential property leases)
  2. A commercial tenant is often required to pay rent plus outgoings (like land tax, council rates, water rates) whereas residential landlords typically pay outgoings.
  3. A commercial lease will specify the purpose for which the property can be used whereas for residential properties, this is obvious.

How are retail leases governed?
In Victoria, retail leases are governed by the Retail Lease Act 2003 (the Act) and apply to a retail premises used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services. The Act has accompanying regulations that complement the Act. If you are entering into a retail lease, it is important that you are also aware of the Retail Leases Regulations 2003. The main objectives of the regulations are to:

  1. Outline the amount of occupancy costs to exclude certain retail premises.
  2. Provide information about outgoings payable by a tenant.
  3. Outline the form of the landlord’s Disclosure Statement.

The Act also states that a retail lease must be in writing with a minimum of a five year term.

Excluded retail premises- Ministerial Determinations
Section 4 of the Act prescribes a number of premises and tenants who have been excluded from coverage of the Act through Ministerial Determinations. The purpose of the Determination is to exempt long term leases. Ministerial Determinations made to date are:

  1. Retail premises located in multi-storey building
  2. Barristers’ chambers
  3. 15 year leases
  4. Melbourne Market Authority
  5. Municipal Council Leases
  6. New Zealand Stock Exchange listed corporations
  7. Charitable and community purposes leases

What information must a landlord give to a tenant before a retail lease is signed?
Before a tenant enters into a retail lease with a landlord or the agent acting for the landlord, the landlord or agent acting for the landlord must, at least seven days before entering into a retail lease, provide a Disclosure Statement and a copy of the proposed lease in writing.

The purpose of the Disclosure Statement is to inform the tenant of the responsibilities regarding various outgoings during the term of the lease, the lettable area, the core trading areas of the shopping centre (if applicable) and number of parking bays in the centre which may not be covered by the retail lease itself.

If the tenant does not receive the Disclosure Statement and proposed lease at least seven days before entering into a retail lease, the tenant may give notice to the landlord that the Disclosure Statement has not been given. The tenant may then withhold payment of the rent until the Disclosure Statement is furnished. The tenant will not be liable to pay the rent from the day the tenant gives the notice and the date the landlord gives the Disclosure Statement.

Conclusion
Before signing anything, it is important to have a thorough understanding of your rights and responsibilities under a commercial or retail lease agreement. Ensure you are armed with all the requisite information and have conducted all the necessary searches before signing a lease. In the end, it is in everyone’s best interest to ensure that a good landlord tenant relationship endures during the term of the lease. Here, at Dangerfield Exley Lawyers, we can assist you with reviewing a retail lease or providing more information. Please feel free to contact Simon Exley or Aaron Chan of our Property team.

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