Retail Leases Act NSW: a tenant's guide

If you are leasing retail premises in NSW, the Retail Leases Act 1994 gives you a set of protections that do not apply to ordinary commercial leases. Knowing them before you sign puts you in a far stronger position. This guide covers the key points for tenants.

Does the Act apply to your lease

The Act applies to leases of retail shops, broadly premises used for the sale or supply of goods or services listed in the Act, and shops in a retail shopping centre. Some premises and some larger leases are excluded.

The first question in any leasing matter we handle is whether the Retail Leases Act applies, because it changes everything that follows. If it does apply, the landlord has obligations they cannot contract out of, and you have protections you should use.

The disclosure statement

Before you enter the lease, the landlord must give you a disclosure statement. It must be given at least 7 days before the lease is entered into. The disclosure statement sets out the key commercial terms, including the rent, the outgoings you will pay, the permitted use, and any fit-out or contribution arrangements.

Read the disclosure statement closely and check it against the lease. If it is not given, is late, or is incomplete or misleading, you may have rights, including in some cases a right to terminate the lease early. Raise any problem before you sign, not after.

Outgoings

Outgoings are the building running costs the landlord passes on, such as council and water rates, insurance, and centre management costs. The Act controls how outgoings can be recovered. The landlord generally cannot recover an outgoing that was not disclosed, and must give you estimates and annual statements.

This is an area we look at carefully, because outgoings can add a large and unpredictable amount to your real rent. Make sure you understand which outgoings you are liable for, how they are apportioned, and whether there is a cap.

Rent and rent reviews

The lease will set the starting rent and how it is reviewed over the term. Reviews can be by a fixed percentage, by CPI, to current market, or by another method. The Act places some controls on rent review methods.

Our practical point is that the rent review method matters as much as the starting rent. A low starting rent with an aggressive review can cost you more over a five-year term than a higher rent with a modest review. Model it over the whole term.

Term, options and minimum term

Check the term and any options to renew, and diarise the deadline to exercise an option, because missing it can cost you the renewal and the goodwill tied to the location.

There is no longer a minimum 5-year term for retail leases in NSW. That requirement, and the old certificate process to contract out of it, has been removed. So you and the landlord can agree a shorter term if that suits the business.

Bond or bank guarantee

The landlord will usually want security, either a cash bond or a bank guarantee. A cash security bond is dealt with under the NSW Retail Bond Scheme rather than simply held by the landlord. Make sure the lease deals with how and when the security is returned at the end of the lease.

Registration

A retail lease for a term of more than 3 years, including any option periods, generally needs to be registered. Registration protects your interest in the land. The lease should say who attends to registration and who pays the cost.

Disputes

If a dispute arises under a retail lease, it is usually dealt with first through the NSW Small Business Commissioner, which offers mediation, and then, if it cannot be resolved, through the NSW Civil and Administrative Tribunal. Many retail lease disputes are resolved at mediation, which is faster and cheaper than a hearing.

How we help tenants

We review the lease and the disclosure statement together, model the real cost over the full term including outgoings and reviews, and negotiate the terms that matter most to you. The time to get advice is before you sign. Once the lease is signed, your room to move is much smaller.

Frequently asked questions

How do I know if the Retail Leases Act applies to me? Broadly, if you lease premises used for retail sale or supply of goods or services, or a shop in a retail centre, the Act is likely to apply. Some premises and larger leases are excluded, so check.

When must I get the disclosure statement? At least 7 days before you enter the lease.

Is there still a minimum 5-year term? No. The minimum 5-year term has been removed, so a shorter term can be agreed.

Where do retail lease disputes go? Usually to mediation through the NSW Small Business Commissioner first, then to NCAT if not resolved.

Keep reading

• Commercial leasing
• What to check before signing a commercial lease
• Make good clauses: what commercial tenants need to know

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.