Retail shop leases follow different rules

If the premises is a retail shop, the Retail Shop Leases Act changes the deal.

Queensland treats retail shop leases differently from ordinary commercial leases. Where the Act applies, the landlord must give the tenant a disclosure statement and a draft lease at least seven days before the lease is entered into, the tenant must be given a legal advice report, and the lease carries a minimum term of five years including options unless the tenant obtains a waiver certificate from a lawyer.

The Act also restricts what outgoings can be recovered, controls rent review mechanisms and limits the landlord's ability to pass on certain costs. Whether the Act applies turns on the use of the premises and where it sits, and getting that question wrong at the start is expensive for both sides.

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For landlords and for tenants

The same document, read from opposite ends.

Acting for a landlord, the work is protecting the income and the asset: a covenant strength you can rely on, security by way of bank guarantee or bond, a rent review that keeps pace, outgoings drafted so they are actually recoverable, and a make good obligation that will still be enforceable in five years.

Acting for a tenant, the work is protecting the business: a term and options that match your plans, a rent review that cannot ratchet without limit, permitted use wide enough to let the business change, a fit-out contribution documented properly, and a make good you can actually afford at the end. We act for both, on separate matters, and you will be told plainly which clauses are market and which are not.

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The clauses that cause the arguments

Rent reviews

Fixed percentage, CPI, or market. Each behaves differently over a long term, and a ratchet clause preventing rent falling at a market review can matter enormously in a soft market. Retail shop leases carry statutory controls that ordinary commercial leases do not.

Outgoings

What the tenant contributes to rates, insurance, management and maintenance. It has to be properly described to be recoverable, and under the retail legislation it must be estimated and reconciled. Vague outgoings clauses are the most common source of a dispute we are asked to fix.

Assignment and subletting

If you may want to sell the business, the assignment clause is the most valuable one in the lease. Landlord consent is usual, but it is generally constrained by an implied requirement that consent not be unreasonably withheld, and the retail legislation adds its own process.

Make good

What condition the premises has to be returned in. It can range from broom clean to a full strip back to base building, and the difference is tens of thousands of dollars at the exact moment a business is moving. Negotiate it at the start, when you have leverage.

Personal guarantees

Where the tenant is a company, the landlord will usually want the directors to guarantee it. That puts your house behind the lease. It is often negotiable in scope, in amount or in how long it survives an assignment, and it is worth negotiating.

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QUESTIONS

Frequently asked questions

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Does the Retail Shop Leases Act apply to my lease?

It depends on the use of the premises and its location, and the definition of a retail shop is broader than most people expect, catching many service businesses in shopping centres and some standalone premises. There are exclusions based on floor area and tenant type. It is worth confirming at the outset, because the Act changes the disclosure obligations, the minimum term and what the landlord can recover.

What is the minimum term for a retail shop lease in Queensland?

Where the Act applies, a retail shop lease carries a minimum term of five years including any options, unless the tenant gets a waiver certificate from a lawyer. It is designed to protect tenants, but a tenant who genuinely wants a shorter term can waive it with advice.

Can my landlord refuse to let me assign the lease when I sell the business?

Usually the lease requires the landlord's consent, but consent is generally subject to an implied requirement that it not be unreasonably withheld, and the retail legislation sets out a process and grounds. A landlord can properly refuse where the incoming tenant is not financially sound or the use would change. They cannot simply refuse because it suits them.

What does make good actually require?

Whatever the lease says, which is why it needs reading before you sign. It commonly requires removing your fit-out and returning the premises to its condition at the start, and it can extend to reinstating walls, ceilings and services. Photograph and schedule the condition at handover, because arguments at the end are almost always about what it looked like at the beginning.

Commercial lease lawyers in Ipswich and Springfield

Retail shop leases follow different rules

For landlords and for tenants

The clauses that cause the arguments

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