Retail Leases in NSW – Top 10 Protections for Tenants

From the 1 January 2023 a retail shop business now includes two more business types following the publication of the Retail Leases Regulation 2022 on 16 December 2022.

Recent Updates to Retail Leases Act 1994

Schedule 1 of the Retail Leases Act 1994 was recently updated with the inclusion of two (2) more business types following the publication of the Retail Leases Regulation 2022 on 16 December 2022.

As such and from 1 January 2023 a retail shop business now includes small bars (defined as having a maximum patron capacity of 120 people) and gymnasiums and fitness centres (including yoga, barre, pilates and dance studios). They are no longer commercial leases and are therefore afforded the protections of a retail tenancy.

With the recent update of Schedule 1 of the Retail Leases Act we thought it a good time to revisit retail leases and look at the key protections the Retail Leases Act affords a tenant, as opposed to commercial leases where the Retail Leases Act protections do not apply.

What are retail leases (as opposed to commercial leases)?

As a guide (there are exceptions) the Retail Leases Act deems a lease, to be a retail lease if:

  • the premises in question are less than 1,000m²,
  • the business in question sells goods or services of a type listed in Schedule 1 of Retail Leases Act (being over 160 different types of retail businesses), and
  • the term of the lease is between six months and 25 years, or
  • any business in a retail shopping centre (5 or more shops owned by the same landlord in one building or cluster).

If the lease in question is a retail lease, then the Retail Leases Act applies regardless as to what the lease says.


Top 10 protections for Tenants under the Retail Lease Act

When it comes to the Retail Leases Act there are various inbuilt protections for tenants and below we look at our top 10.

1. Lease preparation expenses

The Retail Leases Act prohibits a landlord from collecting lease preparation expenses (such as their legal fees) from a tenant and any such provision in a retail lease is deemed void.

Tenants should note that this prohibition:

  • does not stop landlord’s from asking for payment of their legal fees and here at Roberts Crosbie Mortenson we often save our clients this expense by rejecting a landlord’s request for payment of such fees, and
  • does not apply to requested amendments to a proposed lease by a tenant (unless certain exceptions apply).

2. Lodgement of bonds

Any cash bond payable by a tenant to a landlord as security for their obligations under a retail lease, must be deposited by the landlord (or the landlord’s agent) with the New South Wales Government’s Retail Bond Scheme, within 20 business days of a landlord receiving it.

This requirement and the benefits of the Retail Bond Scheme to a tenant are:

  • it is held by the NSW Government (not by the landlord),
  • there are no fees involved,
  • it cannot be called on without the tenant’s agreement (as opposed to a bank guarantee), and
  • there are approval processes and rules for paying out bond money at the end of the lease.

3. The payment of key money is prohibited

Key money is money paid to a landlord, which is over and above the rent payable under a lease, to secure a lease from the landlord.

Key money might be paid in a commercial lease situation where there are multiple parties competing for one desirable premise and one party ‘pays extra’ to get a lease of the premises over and above the others.

While key money is permissible in a commercial lease context, when it comes to retail leases, the Retail Leases Act prohibits the payment of key money to a landlord (or the landlord’s agent) and any such provision in a retail lease is deemed void.

4. Disclosure

A landlord must provide a retail tenant with certain information/documentation prior to entry into a retail lease. These are:

  • a copy of the proposed retail shop lease at the negotiation stage,
  • a copy of the Retail Tenancy Guide, and
  • a disclosure statement at least 7 days before entering into a retail lease (noting that the tenant must reciprocate with their own disclosure statement no later than 7 days after receiving the landlord’s disclosure statement).

5. Payment of outgoings and other monies

There are various protections for a retail lease tenant when it comes to payments under a retail lease including:

  • a tenant is not required to pay outgoings which were not disclosed in the landlord’s disclosure statement,
  • the landlord is required to give a tenant a written estimate of the outgoings payable by the tenant in the landlord’s disclosure statement,
  • if the landlord has an obligation to fit out the premises, a tenant cannot be required to pay rent until such time as the landlord has substantially complied with its fit out obligations, and
  • clauses requiring a tenant to pay any amount in respect of capital costs, depreciation, or for the landlord’s interest and borrowing costs are void.

6. Rent reviews

When it comes to rent reviews under a retail lease:

  • base rents can only be reviewed once every 12 months,
  • provisions purporting to charge the higher of two specified rates (eg CPI or a set percentage) are void,
  • ratchet provisions (these only allow rents to rise, not fall) are void,
  • there are controls around calculations of turnover rents,
  • if a landlord and tenant cannot agree on a current market rent, then the rent is to be determined by a valuation carried out by specialist retail valuer, and
  • a tenant can request, by notice in writing to the landlord, an early determination of the current market rent.

7. Mediation

A tenant has the right under the Retail Lease Act to refer any retail lease dispute to mediation by the NSW Small Business Commissioner. This is a very useful (and recommended) step a tenant should consider before escalating a dispute to a court or tribunal such as NCAT.

8. Shopping centre leases

When it comes to retail leases in shopping centres there are a raft of additional provisions under the Retail Leases Act designed to protect a tenant including protections around advertising, rights to form a tenant’s association and trading hours.

9. Unconscionable Conduct

Tenants under retail leases have protections against unconscionable conduct and misleading or deceptive by landlords. This protection is very similar to consumer law protections but it goes both ways in that a tenant cannot also engage in such behaviour.

10. At the end of a lease

A landlord must give a tenant written notice no earlier than 12 months and no later than 6 months before expiry of the current term (or 6 and 3 months for leases of less than 12 months) stating that it:

  • will offer the tenant a new lease, and on what terms including what rent, or
  • informing the tenant that it does not propose to offer the tenant a renewal or extension of the lease.

Key Takeaways

If you have a retail lease, always remember that you have statutory protections afforded to you under the Retail Lease Act that a landlord cannot contract out of. So if your lease is a deemed retail lease under the Act and contains a clause that is contrary to the Act, it is void and unenforceable by your landlord.

Do not get caught out paying a landlord’s legal fees for preparation of your lease or for payment of key money.

When it comes to market rent reviews remember you can ask for a valuation to be carried out by specialist retail valuer ad also for an early determination of the new rent if you are exercising an option to renew.

And finally, if you have a dispute with your landlord, you have the right to have it mediated.

It is advisable that you receive legal advice on any retail lease issue before you sign any lease documentation, including a heads of agreement in relation to a lease.

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The information in this article is not legal advice and is intended to provide commentary and general information only. It should not be relied upon or used as a definitive or complete statement of the relevant law. You should obtain formal legal advice specific to your particular circumstance. Liability limited by a scheme approved under Professional Standards Legislation.

Senior Associate Solicitor