The purpose of this article is to help you determine if you are a tenant of a retail shop and to provide an update on recent changes to retail leasing law that could affect you.
The Retail Leases Act 1994 (NSW) (Act) operates to regulate a number of areas of the relationship between a landlord and tenant in respect of a lease of a retail shop.
What is a retail shop?
a) are used (or proposed to be used) to carry on wholly or predominantly one or more of the businesses prescribed by the Act; or
b) used (or proposed to be used) for carrying on any business in a retail shopping centre.
The prescribed businesses are listed in Schedule 1 of the Act. The businesses prescribed are extensive and list over 150 types of retail shop businesses including pharmacy, beauty, health food shops and amusement and entertainment services.
Certain retail shops excluded
Certain retail shops are excluded from the operation of the Act including shops that have a lettable area of 1,000 square metres or more.
Benefits of being a tenant under the Act
Some of the benefits afforded to a tenant of a retail shop include:
- A landlord must provide a disclosure statement prior to signing the lease;
- A landlord cannot pass on the cost of land tax to a tenant;
- A landlord cannot pass on their legal costs to the tenant (save in certain situations); and
- A landlord cannot prevent the rent from going down at a market rent review.
Recent changes to the Act
A number of changes have been made recently to the Act by the Retail Leases Amendment (Review) Act 2017 No. 2 (Amending Legislation) which takes effect on 1 July 2017.
Some of the more material changes include:
- removal of a five year minimum term (this means that, for a lease that comes into force after 1 July 2017, there is no requirement for a mandatory five year term (which is the initial term together with any further term or extended term).
- increased obligations on the landlord to make disclosure – a tenant is not required to pay any undisclosed liabilities.
- requirement for the landlord to return the tenant’s bank guarantee within two months after the tenant has met all obligations under the Lease.
There are a number of other changes that impact on the rights and obligations of both tenants and landlords which need to be understood by landlords and tenants alike before a retail lease is entered into.
The changes for the most part operate retrospectively, meaning that they will operate in respect of retail shop leases entered into prior to 1 July 2017, there are some exceptions to this position.
What does this mean for you?
If you are looking to enter into a commercial leasing arrangement, please consider whether you could be a tenant of a retail shop and entitled to the benefit of the Act. If you are, it could be prudent for you to ensure that any negotiations take place on this basis (so to ensure that the beneficial rights held by the tenant are taken into account).
It is important to remember that it is the actual use of the premises that will determine whether it is a “retail shop”, This will depend on the business conducted at the premises on a day to day basis.