As an incoming Tenant, it is important to understand their rights and obligations before signing a retail shop lease in Queensland. All retail shop leases in Queensland are governed by the Retail Shop Leases Act 1994 (“the Act”). The purpose of this article is to discuss some common terms found in a retail shop lease along with some of the general obligations and rights of a Tenant.
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Retail ShopThe Act defines a retail shop as a premises situated in a retail shopping centre or where used wholly or predominantly for the carrying on of a retail business. As to what is a retail business, there is a prescribed list in the Retail Shop Leases Regulations 2016 regarding what is a retail business.
- There are generally four parties involved in a retail shop lease:
- Landlord or Lessor: is the Owner of the Premises who is entitled to rent;
- Tenant or Lessee: the person who rents the Premises from the Landlord;
- Assignor: generally: generally the existing Tenant who transfers their interest in the Lease to an incoming Tenant;
- Assignee: generally: generally an incoming Tenant who takes over an existing Lease from the existing Tenant.
Rent ReviewA retail shop lease must state the timing of rental reviews and the basis that they will be reviewed. Some common ways rent is reviewed include a fixed percentage, based on CPI movements, a fixed amount or current market rent of the leased premises. It is important for Tenants to understand the method and calculations of how rental will be reviewed to ensure that they can sufficiently plan and budget for any increases. When a Lease is renewed or extended, the Landlord may require that the rent be reviewed based on the then current market rent for the leased premises. Without careful consideration of the current market rent provisions, the Tenant may be left in a severe disadvantage when negotiating with the Landlord.
OutgoingsIt is common in retail shop leases for the Landlord to pass on some of the operating costs for the building to the Tenant. The outgoings should relate to the Landlord’s reasonable expenses directly attributable to the operation, maintenance or repair of the building. Tenants should be aware of what type of outgoings will be payable, how they will be determined and how they are recoverable by the Landlord. The Landlord is required to provide an annual estimate of outgoings to the Tenant and the proportion of those outgoings payable by the Tenant. The Landlord is required to provide an annual estimate of outgoings to the Tenant and the proportion of those outgoings payable by the Tenant.
Trading HoursA lease will contain provisions of the specified trading hours of the leased premises. The Tenant is not required to trade outside the core trading hours of the retail shopping centre. However a Tenant may wish to do so by written agreement with the Landlord (commonly found in restaurant leases).
Disclosure ObligationsThere are certain disclosure obligations imposed on both the Tenant and Landlord prior to entering into a retail shop lease. The Landlord is required to provide a draft Lease and Lessor’s Disclosure Statement to the Tenant at least 7 days before entering into a retail shop lease. For the prospective Tenant, they must provide a Lessee Disclosure Statement to the Landlord at least 7 days prior to entering into a retail shop lease. The Tenant is also required to provide to the Landlord a Financial Advice Report from their Accountant and a Legal Advice Report from their Solicitor. Failure to comply with the disclosure obligations may give rise to certain termination rights. As such, it is important for the respective parties to comply with their disclosure obligations prior to entering into a lease.
Tenant’s rightsA Tenant has certain rights on how they run their business from the leased premises, which are usually detailed in the lease. The Landlord is required to pay compensation for instances of business disturbance if they:
- Substantially restrict access to the leased premises;
- Restrict customers access to the leased premises;
- Cause a disruption to the Tenant’s business;
- Fail to rectify any breakdown of plant or equipment that is the Landlord’s responsibility;
- Fail to clean, maintain or repaint the retail shopping centre or building where it is the Landlord’s responsibility;
- Cause the Tenant to vacate the leased premises before the end of the lease due to an extension, refurbishment or demolition of the shopping centre or building.