Commercial and Retail Leasing
Commercial and Retail Leasing
A lease is a contractual agreement setting out the rights and obligations of each party to the contract. A lease is granted by a person or business to another person or business for a value in return for the right of occupation. This relationship is typically known as between the landlord and the tenant or lessor and lessee.
A commercial lease is a contractual agreement for the leasing of a commercial premises such as industrial sites or office spaces that do not carry on a business concerning retail activity.
Under a commercial lease, the extent of a tenant’s liability is largely dependent on their ability to negotiate their rights and obligations. This is different to a retail lease which is subject to highly regulated legislation.
The terms of a commercial lease include, but are not limited to:
A retail lease is a type of commercial lease entered into by a business operating a retail shop.
“Retail shops” are defined under section 3 the Retail Leases Act 1994 (NSW) (‘the Act’) as premises that are:
In other words, the business premises is permitted to supply goods or services.
Such businesses include, but are not limited to, the following:
The retail shops do not need to be in a retail shopping centre. A “retail shopping centre” is defined under section 3 of the Act as a cluster of premises which has the following attributes:
Leases that do not fall under Retail Leases Act 1994 (NSW)
The Act does not apply to the following retail shop leases:
Differences between Commercial and Retail leases
Unlike a commercial lease, the rights and obligations of tenants under a retail lease are prescribed in legislation. There is an assumption that a retail tenant or lessee has unequal bargaining power to its landlord or lessor.
There are three (3) key differences:
1. Disclosure Statement
Under section 11 of the Act, the lessor is required to provide the lessee with a Disclosure Statement before entering in a lease. The statement is a summary of the commercial terms of the lease. Failure to disclose relevant information may allow the lessee the right to terminate the lease.
2. Unconscionable conduct
A lessor or lessee must not in connection with a retail shop lease engage in conduct that is unconscionable. The Tribunal has power to determine whether a lessor has contravened a subsection in the Act, affording the lessee with protection under the retail lease.
3. Preparation costs
Under section 14 of the Act, the lessor cannot seek or accept the payment of lease preparation expenses in connection with the granting of a retail shop lease. If the lessor contravenes this section, they are guilty of an offence and liable to penalty not exceeding 100 penalty points. However, the lessor is not prevented from requiring payment from the prospective lessee where the preparation expenses were incurred in connection with making amendments at the request of the prospective lessee.