1. Will the retail legislation apply to the lease?
Each state and territory has its own legislation that applies to certain retail leases. To determine whether a proposed lease will be covered by the retail legislation, it is necessary to look at the inclusions and exclusions listed in the legislation. For example, in Queensland, the Retail Shop Leases Act 1994 (Qld) (Queensland Act) applies to premises:
- in a “retail shopping centre” (which has a detailed definition in the Queensland Act), and
- used wholly or predominantly for carrying on one or more “retail businesses”.
The Queensland Act does not apply to:
- shops over 10,000 square metres where the tenant is a listed corporation or a subsidiary of a listed corporation
- shops at theme parks, flea markets, agricultural or trade shows, carnivals or cultural festivals, or
- premises within the common areas of shopping centres that are used for particular purposes (such as information kiosks and entertainment kiosks).
If a lease is a retail shop lease under the applicable state or territory legislation, there are a number of mandatory minimum lease standards that will apply to the lease, regardless of what the lease says.
Because the retail legislation may override clauses in the lease, tenants should be aware that there may be additional or different obligations that landlords and tenants must comply with that are not referred to in the lease.
2. Check the landlord’s disclosure and document representations made by the landlord.
Under the retail legislation in each state and territory, a landlord is required to issue to a tenant a disclosure statement including certain prescribed information about the premises and the proposed lease. There are specific timeframes within which the disclosure statement must be issued to the tenant.
For example, under the Queensland Act, a landlord is required to give to a tenant a Lessor Disclosure Statement seven days before the tenant enters into the lease. The Lessor Disclosure Statement requires the landlord to provide substantial information about the centre, the premises and the lease. It must also attach a copy of the draft lease.
If the landlord does not give the Lessor Disclosure Statement at least seven days before the tenant enters into the lease, the tenant may have a right to terminate the lease at any time within the first six months of the term and claim compensation from the landlord. If the Lessor Disclosure Statement contains incomplete information or false or misleading information, the tenant may also have a right to claim compensation.
Under the Queensland Act, a tenant is required to provide to a landlord a Lessee Disclosure Statement. The form requires the tenant to list all representations that have been made to the tenant by the landlord or the landlord’s agent that the tenant is relying on.
If the relevant retail legislation requires a tenant to provide to the landlord a disclosure statement and that statement allows the tenant to insert any representations that have been made to the tenant, tenants should list all representations and be specific. If there are particular representations that are important to the tenant and the tenant is relying upon those representations, it would be best to list those representations in the form and also include them in the lease.
For example, if a tenant wants to open a sushi takeaway shop and the landlord has represented that he will not allow any other tenants to sell sushi in the centre, that representation should be listed in the form but the tenant should also request that it be inserted into the lease. Many representations are made before the parties enter into the lease, and it may be difficult in the future to prove what was said by the landlord or the landlord’s agent. To ensure the tenant’s rights are protected, it is best for the tenant to request that all major representations that the tenant is relying on be inserted into the lease, as a clear record of what the parties agreed to before entering into the lease.
3. Be aware of how the rent will change during the term and whether the rent is still subject to final survey of the area of the premises.
A tenant should consider obtaining independent advice about whether the rent the tenant will be paying under the lease is a fair rent for the premises based on current market conditions. Is the rent for the first year of the term based on a rate per square metre, with the area of the premises still to be surveyed? If so, the tenant should check what the lease says about how much bigger or smaller the final surveyed area can be in comparison to the estimated area.
For example, does the lease say that the surveyed premises cannot be 10 per cent bigger or smaller than the estimated area? In this example, if the premises end up being 10 per cent bigger than the estimated area, the final rent for the first year of the term and the tenant’s outgoings contribution may be 10 per cent more than the tenant expected. The tenant should ensure that the tenant’s business plan factors in the potential additional rent and outgoings.
The most common methods of reviewing the rent during the term of the lease are:
- fixed percentage rent increases
- adjustments of the rent based on changes in the Consumer Price Index (CPI)
- market rent reviews.
If a tenant wants certainty about what the rent will be during the term, consider asking for fixed percentage rent increases. The risk of agreeing to fixed percentage rent increases is that if the market rents decrease significantly during the term, the tenant may end up paying well above market rent rates.
If a market rent review is inserted in the lease, the retail legislation in most of the states and territories sets out a procedure for carrying out the market rent review. A market rent review process can change the rent significantly, so the tenant will not have certainty as to what rent the tenant will be paying from the date of the market rent review.
The CPI is considered to be a measure of inflation. If the lease provides for CPI increases, the lease should specify which CPI is being used, as CPI is measured at an Australian level and at a state level. Because it is difficult to predict changes in inflation for longer-term leases, CPI rent increases may result in higher or lower rents than if the tenant had agreed to a fixed percentage increase.
