Retail Leases in Victoria
Retail leases are important documents. They define the rights and responsibilities of both landlord and tenant and are enforceable by law. A retail lease can be the biggest financial commitment you will make. The financial and other provisions in the lease will substantially affect the viability of your business and it is extremely important to ensure that you understand all the terms of your lease. It is a good idea to obtain legal advice to ensure you understand your rights and obligations under the lease.
Statutory Disclosure Provisions
Because retail leases are so important, each state and territory has passed laws to protect retail lease tenants. In Victoria, retail leases are governed by the Retail Leases Act 2003. The Act applies to leased retail premises used for the sale or hire of goods by retail, or the retail provision of services where the occupancy cost is less than $1 million per year (based on the combine cost of rent and outgoings). The Act does not apply to retail tenants whose occupancy cost threshold is greater than $1 million per year, tenants that are listed corporations or subsidiaries of listed corporations, leases for a term of less than one year (unless consecutively renewed), or premises or businesses as determined by the Minister.
One of the key ways in which the Act tries to protect retail tenants is by requiring disclosure of information so that tenants understand the obligations they are incurring when they enter into a lease.
For new tenancies, the landlord must provide the tenant with a written copy of the proposed lease at the negotiation stage. The landlord must also provide a disclosure statement which sets out the important aspects of the lease at least seven days before entering into the lease agreement. The Act contains additional provisions regarding lease renewals.
The disclosure statement is an important document. If the landlord fails to provide it the tenant may, in some circumstances, have the right to withhold rent or terminate the lease. The tenant may also have the right to terminate the lease where the disclosure statement was misleading, false or materially incomplete.
Rent
Leases set out the amount of rent and the basis of rental review. If the landlord wishes to determine rent either fully or partly by reference to the turnover of a business, special statutory provisions apply and you should consult your solicitor for advice. If the lease provides for a rent review, the lease must state when the reviews are to take place and the basis or formula on which the reviews are to be made.
Other Expenses
Leases also set out how shared operating expenses will be paid and what the parties' obligations are to repair and maintain the property. Generally, the landlord is responsible for maintaining in good repair the structure of or fixtures in the retail premises, the plant or equipment at the retail premises, as well as the appliances and fittings or fixtures provided under the lease by the landlord relating to gas, electricity, water, drainage or other services. However, the landlord is not responsible for maintaining those things in good repair if the need for repair arises out of misuse by the tenant, or if the tenant is either entitled or required to remove the thing at the end of the lease.
A solicitor can assist you in understanding you and your landlord's obligations to pay for things like management fees, land tax, capital costs, legal or other expenses associated with entering into or assigning the lease, and the landlord's ability to recover outgoings from the tenant.
Permitted Uses
Leases also identify the permitted uses of the property. If the permitted uses are overly restrictive, this may impact your business' ability to expand or diversify in the future, or may make it more difficult to sell your business. You must also consider whether there are any zoning or other requirements that could prevent you from using the space for your intended purpose.
Access
Another issue to consider is access. Leases may contain clauses that either restrict your business hours or the hours in which you may access your business. In some cases, councils may require businesses to stay open at times they would otherwise wish to close.
The End of Your Lease
Your lease will also contain provisions setting out what you need to do when your lease ends. It might be that all you need to do is leave the space clean, tidy and secure. You may also be required to remove fixtures and fittings, and to repair any damages you have caused – essentially to return the property to the condition it was in before you rented it. This makes it a good idea to take notes and photographs before you sign a lease. In other cases, a landlord may accept a cash payment instead of requiring you to return the space to the condition it was in before you rented it.
Care should be given to the negotiation of provisions as until you have done everything required under your lease agreement your landlord can continue to charge you rent. Your landlord may also be able to take items you leave on the premises and either store them at your cost or claim them as their own.
Renewing Your Lease
Generally, you do not have an automatic right to renew your lease unless your lease gives it to you. The lease must state the date until which the option is exercisable, how the option is to be exercised, the terms and conditions on which the lease is renewable, and how the rent is to be calculated during the renewed term. It is important to follow the procedures and timeframes very carefully, otherwise you will lose the right provided by the lease. If you are uncertain as to how to go about renewing your lease, check with your solicitor.
Other Issues
Retail leases are complex and there are a myriad of other issues which arise – issues related to assignment of the lease, special requirements for retail shopping centres, unconscionable conduct, and methods of dispute resolution. Your solicitor can help you work through these issues in order to obtain the best result for your business needs.