Wednesday 16 November 2016

As a landlord, do I have to comply with the Retail Leases Act 2003?

As a general rule, landlords, particularly landlords of commercial properties, enjoy superior bargaining power when it comes to leasing their properties.  The terms and conditions of leases are set by the landlord and, subject to market conditions and the bargaining power of a potential tenant, are often non-negotiable.  In these circumstances, the only option for a potential tenant may be to walk away from the transaction.

The Retail Leases Act 2003 (Act) addresses this imbalance in bargaining power for leases of retail premises in a number of ways, for example by providing that:

  • a landlord cannot pass on to a tenant the cost of preparing and negotiating the lease; 
  • a landlord must consent to a tenant's request for assignment of the lease except in limited circumstances;
  • a tenant has a right to a minimum term of 5 years, even if the lease provides for a shorter term.  However, a tenant can contract of out this right if the tenant obtains a certificate from the Small Business Commissioner under s 21(5) of the Act and gives the landlord a copy of the certificate; and
  • a landlord is responsible for undertaking certain repairs and maintaining the premises in certain ways.

What are 'retail premises'?

The Act applies to leases of 'retail premises' entered into or renewed after 1 May 2003.
'Retail premises' are premises that, under the terms of the lease, are used wholly or predominantly for:

  • the retail sale or hire of goods;
  • the retail provision of services; or
  • the carrying on of a specified business or specified kind of business as determined by the Minister.

Exemptions to the Retail Leases Act 2003

Not all retail tenancies are leases of 'retail premises'.  Some types of leases are exempt from the application of the Act, and the Minister for Small Business, Innovation and Trade has the power to exempt further kinds of business, premises, tenant or leases.
In Government, some of the more commonly encountered categories of exempted leases are:

  • Local council premises used wholly or predominantly for public or municipal purposes;
  • Leases for premises used wholly or predominantly for public or municipal purposes with a rent of $10,000 or less;
  • Premises where occupancy costs under the lease are more than $1,000,000 p/a;
  • Premises where the tenant carries on the business as the landlord's employee or agent;
  • Premises where the tenant is a listed corporation or its subsidiary;
  • Premises located above the first three storeys in a building used for retail purposes; and
  • Leases 15 years or longer in duration that impose substantial obligations on the tenant.

Why does it matter?

The Act alters the balance of power between tenants and landlords by imposing a number of obligations on landlords and creating various tenant rights.  In order to understand their rights and obligations, landlords and tenants must know whether their lease is governed by the Act.  Departments and Agencies proposing to grant a lease of retail premises should always check whether an exemption applies.
As property law experts within Government, the VGSO Property Team is well placed to assist you with land use arrangements and other property issues.  For further advice and assistance, please contact:

Anthony Leggiero
Managing Principal Solicitor
9947 1430

Elizabeth Wortley
Senior Solicitor
9947 1433

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