Leasing a Shop

Date: Oct 03, 2009
Document Type: Newsletter

The vast majority of shops, whether they be in a large suburban shopping centre or in a suburb, are owned by the operator, and in many cases the premises are leased from the land-owner. The Retail Tenancies Act provides a code dealing with leases of retail premises, and is primarily designed to protect tenants. Under the Act, the types of shops which qualify as “retail premises” for the purposes of the Act are listed but include most traditional shops, provided the shop’s area is less than 1000 m2.

When a proposed tenant negotiates with a landlord, the landlord must supply a copy of the proposed lease, a copy of a retail tenancy guide produced by the Department of Fair Trading, and a Disclosure Statement. The statement lists the expenses the tenant will have to pay and summarises the lease arrangements. The tenant must also provide a disclosure statement as to their background.

A lease must be for a minimum term of at least five years, including any option period, unless there is a solicitor’s certificate available as to the shorter term. Once a lease is signed, the landlord must deliver a signed and stamped copy to the tenant within one month – one month of registration if the lease is registered. If there is a cash security deposit, it must be lodged with the Department, but a bank bond or guarantee must be accepted if offered instead.

Almost universally, leases provide for the variation of the rent and this cannot be required at less than annual intervals. A lease cannot provide for any increase to be the greater of two methods as only one method may be used. If the method could allow a decrease, such as a decrease in the Consumer Price Index, a clause saying that rent shall never decrease is prohibited.

Running a small business can be hard work and often a tenant will want to sell their business. As a buyer will require some guarantee of ongoing occupancy, a transfer of the lease will be required in most cases. Does a landlord have to agree? If the use of the premises will not change and if the proposed tenant has financial resources and retailing skills as good as the existing tenant, the landlord must agree. This is, of course, subject to some procedural requirements being met.

If there are unresolved disputes between the landlord and the tenant, the Administrative Decisions Tribunal has the exclusive power to determine the outcome, and the Tribunal’s practice is to require mediation to be attempted before it will consider the matter. The Tribunal operates more informally than a court and many complaints are resolved by agreement. Never forget though that the Act is a law and must be complied with. Failures on the part of both landlords and tenants to do the right thing can lead to expensive consequences!

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