A Lease is a contractual agreement between a Landlord (also known as a Lessor) and a Tenant (also known as Lessee). This agreement governs the relationship between the Landlord and Tenant and in particular, sets out the rights and obligations of both parties with respect to a Tenant’s use of the premises.
However, there are different types of leases depending on the purpose for which the premises are being used, in particular, Commercial and Retail. It is important for both the Landlord and Tenant to ensure that they enter into the correct kind of lease, as there are different regulatory laws involved and different rights and obligations.
A Commercial Lease is a general term that refers to a lease that is not a retail lease and ordinarily used where the purpose of the Tenant’s use of the premises concerns wholesale, storage or use as a warehouse. A commercial lease typically affords less protection than other forms as the law assumes businesses and business people are more knowledgeable than consumers and lay people and are therefore better able to navigate these negotiations and agreements.
Other than the due diligence undertaken over the course of usual commercial negotiation, there are no disclosure requirements under a commercial lease. Legal costs of the preparation of the lease are a matter for negotiation between the parties that commonly sees the Tenant pay for the Landlord’s legal fees in addition to their own. In a Commercial Lease parties are bound by the clauses negotiated in the lease relating to the assignment of the lease. Disputes under a Commercial Lease, are to be resolved via the Courts unless parties agree on another form of alternative dispute resolution there is no provision to take legal disagreements to an administrative tribunal, and all disputes. With respect to relocation and demolition, again, the parties rely upon any negotiated clause with respect to the relocation and demolition of the premises.
Whether a lease is a Retail Lease is governed by the provisions of the Retail Leases Act 1994 (NSW). If a lease is deemed a retail lease, this subsequently attracts the protections of these retail leasing laws. To determine whether a lease is a retail lease, we must look to the legislation. Generally speaking, if the leased premises is in a shopping centre this legislation applies. A premises is considered a retail shopping centre if there are 5 or more premises predominantly carrying on one or more of the businesses listed in Schedule 1 of the Retail Leases Act. However, there are some exceptions and in NSW, the Retail Leasing Act will not apply to:
- Shops that have a lettable area of 1,000 square metres or more;
- Businesses managed by the lessee on behalf of the lessor;
- Shops operated within a cinema, bowling alley or skating rink by the person who operates the cinema, bowling alley or skating rink;
- Premises used only for an excluded use as defined by the Act, for example, vending machines, storage lockers, private post boxes, public telephone, public tables and seating, etc.
- Leases with a term over 25 years.
Differences Between Commercial and Retail Leases:
The main differences between retail and commercial leases are is in the law that governs their operation. In a retail lease imposes addition obligations on the Landlord as required by the Retail Leases Act primarily concerned with consumer protection, for example:
- During the negotiation of a retail lease and at least 14 days prior to the Tenant signing the lease, the Landlord must supply the tenant with a Retail Lease Disclosure Statement and a copy of the proposed lease. Failure to provide this may give rise to a Tenant’s right to terminate;
- A Tenant is offered protection against unconscionable or deceptive conduct by the Lessor;
- In a Retail Lease, the Landlord cannot pass the preparation costs onto the Tenant;
- The lease itself and the leasing legislation will regulate the assignment of the lease meaning the Tenant is afforded greater rights than under a commercial lease;
- Independent retail valuers are used to determine rent reviews in the event that both parties cannot agree on the actual rent.
How can we help you?
Before you enter into a lease, it is important to understand whether it is retail or commercial.
Adams & Partners Lawyers are able to clarify the type of lease you require and assist in the drafting and negotiation of your lease. We can also help in assigning, varying or surrendering a lease, enforcing the terms of your lease, terminating your lease, taking an assignment of a lease and any dispute arising between a Landlord and/or Tenant.