Though similar in nature, retail and commercial leases have notable differences which accommodate for their varying purpose. This article will discuss those differences.
A commercial lease is a contract between the owner and landlord of a commercial property, and the tenant who wishes to conduct business on that property.
A retail lease, on the other hand, is a type of commercial lease where the property in question is used solely or predominantly for trade purposes e.g. opening a clothing store.
In NSW, retail leases are governed by the Retail Leases Act 1994 (‘the Act’). Pursuant to the Act, a lease will be a retail lease if the premises are:
Examples of retail shop businesses listed in Schedule 1 of the Act are as follows:
However, even where the above requirements are satisfied, the Act does not apply to leases:
The Act also excludes the operation of certain retail shops including:
To determine whether a lease will be a retail or non-retail (yet still commercial) lease, one should look to the purpose of the lease.
Generally, the wholesale, manufacture or storage of goods on a property is not sufficient to deem the property as lettable for retail purposes. In contrast, premises that sell or provide goods and services to the public are likely to be considered a retail property.
The major differences between retail and non-retail commercial leases are the additional protections granted to retail tenants. Some of these differences are outlined in sections 9, 11, 12 and 16 of the Act.
A landlord of retail premises must ensure a copy of the proposed lease is made available to any prospective tenant during negotiations.
This is unlike the usual procedure for non-retail leases where a draft lease is generally not provided until negotiations have been finalised.
The “Lessor’s Disclosure Statement” is a written statement containing information and materials which are relevant to the lease.
In retail leases, the lessor (or landlord) must give the lessee (or tenant) the Lessor’s Disclosure Statement at least 7 days prior to entering into the lease whereas there is no requirement to provide such a statement to the tenant for non-retail commercial leases.
If the lessee is not given a disclosure statement or the statement is incomplete or materially false, the lessee is able to terminate the lease (by notice in writing) within 6 months of commencement unless:
Unless disclosed in the Lessor’s Disclosure Statement, any provisions in a retail lease that require the lessee to pay or contribute towards the following are void:
As for commercial leases, a lessee may be required to pay or contribute to the above costs since no disclosure statement is provided.
A lessor must not seek or accept the payment of key-money or lease preparation expenses for a retail lease. Any provisions in the lease to this effect are void. This does not however prevent a lessor from:
Expenses incurred during the preparation of the lease for amendments requested by the lessee or prospective lessee are not prohibited unless it is an amendment:
Whereas commercial leases can be as short as three (3) years, not including options to renew, a retail lease must have a minimum term of five (5) years.
Yet this minimum term of five years can be reduced if a lawyer or licensed conveyancer, not acting for the lessor, certifies in writing that:
This certificate is to be given before, or within six (6) months after the lease was entered into.
Comasters can assist clients in drafting, negotiating and finalising leases (both Retail and Commercial) including the process of registration.
 Retail Leases Act (No 46)1994 (NSW) s 6.
 Ibid s 5.
 Ibid s 9.
 Ibid s 11 (1).
 Ibid s 11(2).
 Ibid s 12.
 Ibid s 14 (1).
 Ibid (3).
 Ibid (4).
 Ibid s 16 (3).
© Comasters November 2016.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this paper. Our formal advice should be sought before acting on any aspect of the above information.