Leases are often a complex and difficult-to-navigate aspect of operating a business. It is important that business owners as tenants are aware of the full spectrum of their rights and obligations under a lease of business premises to avoid unnecessary costs being incurred and ensure that they make informed business decisions.
Leases are governed by state legislation, and in all states, there is a clear and significant distinction between retail leases and commercial leases. The vast majority of our members who lease business premises are considered to be tenants in a retail lease. This means that they will be covered by retail leasing laws which aim to provide for fairer and more transparent dealings between landlords and tenants. There are also provisions in retail leasing legislation relating to dispute resolution mechanisms where there is a dispute between landlord and tenant.
Common provisions in retail leasing legislation across all Australian states and territories include disclosure obligations on the landlord (such as costs of outgoings and other significant amounts associated with the lease), minimum terms, minimum notice periods and time limits and prohibitions on the landlord claiming legal costs for preparation of the lease.
When entering into a lease, tenants must ensure that they do not make any decisions under undue pressure from a landlord or their agent, nor in reliance on any verbal representations. It is imperative that business owners seek legal advice on a lease before entering into the lease and committing themselves. Landlords are required to provide a disclosure statement in connection with the lease which should accurately state all outgoings of the premises as well as other relevant information. Landlords should also provide a draft lease to tenants for their review before any documents are signed. Tenants should also pay attention to which party pays fit-out costs at the beginning of the lease and “make good” obligations at the end of the lease, both of which can be substantial amounts.
Rental reviews (usually resulting in increases) must be clearly disclosed in the lease – the amount by which rental will increase, and by which mechanism (e.g. fixed percentage, market review). These increases should be factored in when considering long-term business costs as they can be significantly higher than when the lease is first entered into.
If members have any queries about their tenancy or retail leasing in general please contact the MGA Employment Law team on 1800 888 479 (option 1).