Commercial & Retail Leasing

Retail lease or commercial lease

Whether a lease is "retail" turns on the use of the premises for the sale or hire of goods or the retail provision of services, and on exclusions in the Act and Ministerial determinations. Retail leases attract statutory protections for the tenant, including:

• A disclosure statement in prescribed form given at least 14 days before the lease is signed.
• Restrictions on land tax being passed through as outgoings.
• Restrictions on the tenant paying costs incurred by the landlord in negotiating the lease.
• Minimum five-year term (including options), unless the tenant requests otherwise and legal advice is provided.
• Rent review methods regulated to avoid ratchet clauses and multiple methods in the same year.
• Dispute resolution through the Victorian Small Business Commission and VCAT.

The commercial and industrial lease regime under the general law is more flexible but places responsibility on the parties to negotiate the terms they want.

Key negotiation points

• Term, options and renewal mechanisms.
• Base rent and rent review method (fixed, CPI, market or a combination).
• Outgoings — what the tenant pays and what is excluded.
• Permitted use and exclusivity.
• Fit-out contributions and rent-free periods.
• Make-good obligations at the end of the term.
• Assignment and subletting rights and consent standards.
• Security — bank guarantee, bond, or personal guarantees from directors.
• Insurance responsibilities and public liability limits.
• Repairs and maintenance obligations, including capital items.

Acting for landlords

We draft leases that reflect the landlord's commercial position while complying with the applicable statutory regime. Retail lease disclosure statements are prepared carefully — a deficient disclosure statement can allow the tenant to terminate.

Acting for tenants

We review leases before signing, negotiate amendments, and advise on exercising options and disputes during the term. Common issues we raise for tenants include unfair make-good clauses, excessive outgoings, unclear rent-review mechanics and inadequate demised area descriptions.

Assignment, sub-letting and end of term

Selling a business often requires the lease to be assigned to the buyer. Retail Leases Act provisions require the landlord to act reasonably in giving consent and prescribe a process. We prepare and negotiate deeds of assignment, dealing with security transfers and release of the outgoing tenant where appropriate.

At the end of the term, careful attention is needed to make-good obligations. Disputes often turn on the condition at commencement, the standard required by the lease and industry norms for the premises type.

Retail Leases Act 2003 (Vic) — when it applies

The Retail Leases Act 2003 (Vic) applies to leases of premises used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services, subject to defined exclusions. Where the Act applies, it imposes statutory disclosure obligations on the landlord before the lease is entered into, regulates recovery of outgoings, prohibits certain terms (including landlord recovery of legal costs of preparing the lease), and gives the tenant certain minimum rights on renewal. The application of the Act to a particular lease is a mixed question of use, size and lease structure that should be checked at the outset.

Disclosure statements and legal advice

Where the Act applies, the landlord must provide a disclosure statement in the prescribed form before the lease is entered into. The tenant is required to obtain, or be offered the opportunity to obtain, legal and financial advice. We prepare and review disclosure statements for landlords and advise tenants on the disclosures they receive.

Key negotiation points

• Term and options. The lease term, further term options, and the mechanism and timing for exercising options.
• Rent and reviews. Fixed, CPI, market and hybrid rent review structures each have consequences over the life of the lease.
• Outgoings. Which outgoings are recoverable and in what proportion, and the frequency of estimated and audited statements.
• Permitted use. A narrow permitted use protects a tenant against competition but restricts a tenant's ability to change its business or assign to a different operator.
• Fit-out and make-good. Landlord contribution to fit-out, and the tenant's obligation to make good at the end of the lease, are frequently the subject of dispute if not documented clearly.
• Assignment and subletting. The consent regime and the extent of releases available to an outgoing tenant.
• Security. Bank guarantee amount, personal guarantees, and the circumstances in which security can be called.

Non-retail commercial leases

Leases that fall outside the Retail Leases Act are governed by general commercial law and the terms of the lease. Landlord and tenant are free to allocate risk more broadly, but the practical issues — term, rent review, outgoings, make-good, assignment — are the same. Careful drafting is if anything more important because the statutory backstops that apply to retail leases do not apply.

Dispute resolution under a retail lease

Retail lease disputes are ordinarily dealt with through the Small Business Commission and, if not resolved, VCAT. Both are designed to be faster and less expensive than the Supreme Court.

Where separate advice is required

The financial viability of a lease is a matter for the tenant's accountant. GST treatment of rent and outgoings, and the tax treatment of any incentive, is a matter for the tenant's tax adviser. Insurance requirements should be confirmed with the tenant's broker. We coordinate with these advisers but do not provide financial, taxation or insurance advice.

Limitations of general information

Retail and commercial leasing is document-specific. This page is general in nature and is not a substitute for advice on your lease.