For any business looking to trade under a retail business model in Victoria it is paramount to have a reasonable grasp of the simple practical aspects of the Retail Leases Act 2003 (‘the Act’) and how this law applies in relation to tenants and landlords.
What are Retail Premises?
Retail premises means premises (not including any area intended for use as a residence) that are used under a lease wholly or predominantly for the sale or hire of goods by retail or the retail provision of services.
The phrase ‘retail provision of services’ may seem slightly ambiguous and it is also not defined in the Act. The courts have accepted that this phrase means services provided for a fee to an ‘ultimate consumer’ and that are generally available to anyone who is willing to pay the fee.
If your business fits into the above description, your lease may well be governed by the Retail Leases Act.
Tenants Entitlements when entering into a Retail Lease
When negotiations between a landlord and tenant begin, the landlord must give the tenant a copy of the proposed lease as well as a copy of the Victorian Small Business Commission’s (VSBC) information brochure – Retail leases: important facts for tenants.
A landlord must give the tenant a disclosure statement and copy of the proposed lease no later than 14 days before the lease is entered into.
A disclosure statement contains essential lease information so the tenant can understand the important elements of the lease.
It can include:
- How long the lease is for
- whether there are options for further terms
- the occupancy costs for leasing the premises (including rent and any outgoings).
- specific information for shopping centre leases
- the tenant’s fit-out requirements
- if there are any relocation or demolition clauses.
It is very important that a tenant carefully reviews the disclosure statement so that they have a proper understanding of the costs associated with a lease. It can often be the case that outgoings will equate to 20 to 40% of the monthly rental costs, thereby significantly increasing the overall costs of renting the premises.
A lease must be in writing and the tenant is entitled to a copy of the lease signed by both parties.
Money paid by the tenant to the landlord as a security deposit (bond) must be held by the landlord in an interest-bearing account, and the interest accrued must form part of the security deposit.
The tenant is not liable for the landlord’s costs of the negotiation, preparation or execution of the lease or obtaining the consent of a mortgagee to the lease.
Whilst a lease term under the Act (including any options) must be at least five years, a tenant can request a shorter term for its lease.
Renewal of a Lease
If a tenant’s lease does not have an option to renew for a further term, the landlord must, at least 6 months but no more than 12 months before the lease term ends, give written notice to the tenant –
- offering the tenant a renewal of the lease on the terms specified in the notice (including a term setting out the rent); or
- informing the tenant that the landlord does not propose to offer the tenant a renewal of the lease.
Responsibility for Repairs
The landlord is responsible for maintaining:
- the structure of, and fixtures in, the retail premises
- plant and equipment at the retail premises
- the appliances, fittings and fixtures provided under the lease relating to the gas, electricity, water, drainage, or other services.
The Landlord only has to maintain the premises in a condition consistent with the condition of the premises when they were first leased. So if the premises were run down at the start of the lease, that is the base line that the Landlord must retain for the duration of the lease.
Interference with Tenancy
If a landlord intends carrying out alterations or refurbishments of the retail premises, and these are envisaged to adversely affect the tenant, the landlord must provide the tenant with notice of a proposed alteration or refurbishment in writing at least 60 days before it starts. The landlord can carry out refurbishments which may be an interference where the alteration or refurbishment is necessary because of an emergency and the landlord has given the tenant the maximum period of notice that is reasonably practicable in the circumstances.
Compensation for Interference with Tenancy
Tenants should be conscious that only in limited circumstances can they get compensation for interference with their tenancy, such as where the landlord:
- substantially inhibits the tenant’s access to the retail premises
- unreasonably takes action that substantially inhibits or alters the flow of customers to the retail premises
- unreasonably takes action that causes significant disruption to the tenant’s trading at the retail premises
- fails to take reasonable steps to prevent or stop significant disruptions to the tenant’s trading at the retail premises
- neglects to adequately clean, maintain or repair the building in which the retail premises are located (but not the retail premises themselves)
- fails to rectify as soon as practicable—
- any breakdown of plant or equipment that is not under the tenant’s care or maintenance; or
- any defect in the retail premises or in the building or retail shopping centre in which the retail premises are located (other than a defect due to a condition that would have been reasonably apparent to the tenant when entering or renewing the lease or when the tenant accepted assignment of the lease)
Tenants should however be aware that you can’t hold landlords liable for compensation as a reasonable response to an emergency or in compliance with any duty imposed by or under a law or resulting from a requirement imposed by a body acting under the authority of a law.
In summary, if you lease or intend leasing retail premises in Victoria, be sure to familiarise yourself with the rights of tenants and the corresponding obligations of the landlord in retail prescribed by the Act.
If you require further assistance with negotiating or reviewing a lease or renewal of a lease, please contact one of our leasing and/or property lawyers on 8320 2955.
