Retail Leases – What is a Lessee Entitled to?

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Leasing a premises for your business can be an exciting process. However, as leases are generally drafted by lessors, the clauses are predominantly in the lessor’s favour. Nevertheless, the Retail Shop Leases Act 1994 (Qld) (“the Act”) provides lessees protection as long as the lease meets the definition of a retail shop lease. It is important that lessees are aware of their entitlements under the Act and what recourse they can take if the lessor does not fulfil their obligations.

What is a retail shop lease?

A retail shop lease has a general definition however, the Act does exclude some retail leases being considered as a retail shop lease. The following retail leases are excluded from the Act’s application:

• a retail lease with a leased premises of more than 1,000m²;

• retail shop in the South Bank corporation area that is either a perpetual lease or for a term of at least 100 years;

• leased premises for use as the lessor’s employee or agent;

• leased premises in a theme of amusement park;

• leased premises in a flea market; and

• some temporary retail stalls at shows or events.

As long as your retail lease is not one of the above options, then the Act may apply to your lease.

Disclosure Statement

A lessee must be provided a disclosure statement by the lessor before they sign the lease. A disclosure statement is a form which provides important information associated with the lease and the leased premises, including:

• rent and outgoings that are required to be paid by the lessee during the lease;

• the area of the leased premises;

• whether there is an option to renew the lease; and

• when rent may be reviewed and at what dates may the rent increase.

The lessor must give this to the lessee at least 7 days before the commencement of the lease. The same applies if the lessee is renewing their existing lease, the lessor must provide the lessee with an updated disclosure statement within 7 days after the lessee notifying their exercise of the option to renew. The only exception to the lessor not having to provide the disclosure statement by the 7 day period is if the lessee agrees to waive the 7 day requirement. This means the lessee will have to provide a written waiver notice confirming this.

If the lessor does provide a disclosure statement but the lessee finds out that the statement is incomplete or provides false or misleading information, then the Act allows the lessee to terminate the lease during the first six months of entering it. If the lessee wants to terminate the lease, they must provide the termination by written notice. The lessor may also be required to compensate the lessee if the lessee has suffered a damage as a result of the misleading information in the disclosure statement.

Rent Reviews

The lease may address that rent will be increased. However, the rent can only be increased once per year and can only be reviewed (and therefore increased) using one method of either:

• Consumer Price Index (CPI);

• a fixed percentage; or

• a market rent review.

If the lease is subject to a market review and there is an option to renew the lease, then the lessee is entitled to request an early determination of market rent so long as the market rent review was due to take place at the commencement of the option start date. The request for an early determination of market rent can be made between 3 to 6 months before the last day by notifying the lessor of the lessee’s exercise of the option to renew the lease.

Outgoings

A lessee may be required to pay a proportion of the outgoings. How much of the outgoings the lessee must pay will be provided for in the lease and the lessor disclosure statement. However, if the lessor intends to make the lessee pay a proportion of the outgoings, they must:

• ensure the outgoings are proportioned so that the lessee is only paying for the percentage they are using for the whole lettable area;

• provide the lessee an estimate of the outgoings at least 1 month before the commencement of the relevant outgoings period; and

• provide the lessee an audited annual statement of the outgoings within 3 months after the end of the outgoings period.

If the lessor fails to complete any of the above, then the lessee can withhold paying the outgoings until they receive the required information.

Relocation or Demolition

If the lease contains a relocation or demolition clause, then the lessor must provide the lessee with a 3 month notice advising of the intention to relocate the lease. If this occurs, then the lessee is entitled to:

• terminate the lease within 1 month of receiving the notice;

• ensure that the terms and conditions of the relocated lease are the same as the original lease and have rent reduced as a result of a reduction to commercial value between the new and original premises; and

• request the lessor pay the lessee’s reasonable costs to relocate (for example disruption to a lessee’s trading hours and/or restricting access to use the premises).

Commercial Lease

Unfortunately, commercial leases do not have their own legislation that provides these types of protections. Relevant legislation confirming the validity of leases include the Australian Competition and Consumer Act 2010 (Cth) for misleading and deceptive conduct and Part 8 of the Property Law Act 1974 (Qld) which provides provisions generally for leases. Therefore, the terms and conditions of a commercial lease will provide any recourses and rights a lessee has under it.

If you have any questions or require assistance with drafting, renewing or amending your lease in Queensland, please contact the property team at NB Property Law for more information

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