Commercial lease vs retail lease: what's the difference?

People use commercial lease and retail lease as if they mean the same thing, but in NSW they are legally different, and the difference changes your rights significantly. If you are a tenant or a landlord, knowing which one you have is the first thing to establish. This guide explains the distinction and why it matters.

Why the distinction matters

All leases of business premises are, loosely, commercial leases. But some are also retail leases, which are governed by the Retail Leases Act 1994. The Act gives retail tenants a set of protections that do not apply to ordinary commercial leases, and it imposes obligations on landlords that they cannot contract out of.

So the question is not academic. If your lease is a retail lease, you have extra rights, and the landlord has extra duties. If it is an ordinary commercial lease, the relationship is governed mainly by the lease itself and the general law, with far fewer statutory protections. The first thing we establish in any leasing matter is which category applies, because everything else follows from it.

What makes a lease a retail lease

Broadly, the Retail Leases Act applies to leases of premises used wholly or predominantly for certain retail businesses, and to shops in a retail shopping centre. The Act contains a list of the kinds of businesses treated as retail, and premises in a shopping centre are generally caught.

There are also exclusions. Some premises are excluded by the Act, and leases above a certain size or of certain kinds may fall outside it. Because the boundaries can be fuzzy, whether a particular lease is a retail lease sometimes needs careful analysis, especially for mixed-use premises or unusual businesses. This is exactly the kind of question worth checking before you sign, not after a dispute.

The protections a retail lease gives a tenant

If the Retail Leases Act applies, a retail tenant gets protections an ordinary commercial tenant does not. The main ones include the following.

• A disclosure statement. The landlord must give the tenant a disclosure statement at least 7 days before the lease, setting out the key terms. There is a separate article in this series on disclosure statements.
• Controls on outgoings. The Act limits what outgoings the landlord can recover and requires estimates and statements, so a tenant is not hit with undisclosed costs.
• Controls on rent reviews. The Act places limits on how rent can be reviewed, including restrictions on using more than one review method at the same time.
• Limits on certain costs. The Act restricts the landlord passing on some costs, such as certain lease preparation costs.
• Access to low-cost dispute resolution. Retail lease disputes can go to mediation through the NSW Small Business Commissioner and then to NCAT, rather than straight to court.

These protections exist because retail tenants, often small businesses, are usually in a weaker bargaining position than their landlords. The Act is there to level that up.

What an ordinary commercial lease looks like

An ordinary commercial lease, such as for an office or a warehouse that is not caught by the Act, is governed mainly by the lease document and the general law. There is no mandatory disclosure statement, no statutory control on outgoings or rent reviews, and no special low-cost dispute path. The tenant's protection is whatever the lease provides, which makes negotiating the lease terms even more important.

The practical consequence is that a commercial tenant has to rely on getting the contract right, because the statute will not fill the gaps the way it does for a retail tenant. That makes a careful review before signing, and sensible negotiation of the key terms, all the more valuable.

Why you need to know which you have

Knowing the category affects what you can negotiate, what the landlord must disclose, how rent and outgoings work, and where a dispute goes. A landlord who treats a retail lease as an ordinary commercial lease can breach the Act. A tenant who does not realise they have a retail lease can miss protections they were entitled to. Establishing the category correctly, at the start, is the foundation for everything else.

How we help

We work out whether a lease is a retail lease or an ordinary commercial lease, which is the first and most important question, and then advise and negotiate accordingly. For retail tenants, we make sure the disclosure and the statutory protections are used. For commercial tenants, we focus on getting the contract terms right, since the statute will not. For landlords, we make sure the lease and the process comply. There are separate articles in this series on what to check before signing a lease and on the Retail Leases Act for tenants.

Frequently asked questions

What is the difference between a commercial lease and a retail lease? A retail lease is a commercial lease that is also governed by the Retail Leases Act, which gives the tenant extra statutory protections. An ordinary commercial lease is governed mainly by the lease and general law.

How do I know if my lease is a retail lease? Broadly, if the premises are used predominantly for a retail business listed in the Act, or are a shop in a retail shopping centre. Some premises are excluded, so it is worth checking.

Why does it matter which one I have? It changes your rights and the landlord's obligations, including disclosure, outgoings, rent reviews, and where a dispute goes. The category should be established before you sign.

Does a commercial tenant get a disclosure statement? Not as of right. The mandatory disclosure statement is a retail lease protection. A commercial tenant relies on the lease terms, which is why negotiating them matters.

Keep reading

• Commercial leasing
• Retail Leases Act NSW: a tenant's guide
• What to check before signing a commercial lease

This article contains general information only and is not legal advice. For advice about your situation, please contact us. Liability limited by a scheme approved under Professional Standards Legislation.