Retail and Commercial Lease Lawyer

Most leases are lost or won before the formal document is drafted. The heads of agreement sets rent, term, incentive, permitted use and who pays for what, and once it is agreed those terms are very difficult to move. We review it before you sign, tell you whether it is binding, and explain what each term will mean once it is written into a lease. Heads of agreement review, retail or commercial: $750 + GST.

A fixed fee covering the whole transaction, whether you are the landlord or the tenant. That means reviewing or drafting the lease, raising and negotiating amendments with the other side, advising you on what the final terms oblige you to do, and seeing the lease through to signing. Commercial (non-retail) lease: $2,000 + GST.

Retail leases cost more because the Retail Leases Act 1994 (NSW) adds obligations that do not exist in a commercial lease, and the consequences of getting them wrong fall on whichever party failed to comply. The fee covers the disclosure statement, the statutory timing requirements, and the review of any term the Act prohibits or restricts. Retail lease: $2,200 + GST.

Not every leasing question needs a full lease. Most of what comes up during a term is one of these: a lease renewal at $1,600 + GST where we acted on the original lease, a deed of variation from $850 + GST depending on how much of the lease the change touches, an assignment of lease or sublease at $1,200 + GST, a deed of surrender at $900 + GST to end a lease early, or an agreement for lease from $1,600 + GST with the lease itself charged separately. All fees are fixed and quoted before we start. Disbursements such as registration fees are additional and are set by the relevant authority rather than by us.

Almost everything, before signing. The terms tenants most often assume are fixed, and most often are not, are the rent review method, the make good obligation, the length of the option period, the size of the bank guarantee, and whether a demolition or relocation clause appears at all. A landlord presenting a standard form is presenting a starting position, not a finished document.

In a soft leasing market the concessions that cost a landlord least tend to come first: a rent free period, a fit-out contribution, a longer option, or a cap on outgoings. Landlords are generally more reluctant to move on the rent review mechanism or the make good obligation, because both affect the value of the building rather than the cash position in year 1.

The terms that cause the most expensive disputes years later are make good, the rent review method, and the permitted use. A tenant who accepts an open-ended make good obligation, a ratchet clause, or a permitted use narrower than the business actually needs, has accepted a cost that does not appear anywhere in the rent but will arrive eventually.

Some leases should not be signed. A demolition clause with short notice and no compensation, a relocation clause with no limits, or a make good obligation requiring the premises be returned to base building when the tenant never received it that way, can each make a fit-out investment unrecoverable. We will tell you plainly where a term carries that kind of risk, explain what it would mean in practice, and leave the commercial decision to you.

Rent is usually reviewed by a fixed percentage, by CPI, or to market. A ratchet clause is one that prevents the rent going down at a market review, so the rent can only ever hold or rise. Ratchet clauses are prohibited in retail leases in NSW. In a commercial lease they are permitted, which means a tenant signing a commercial lease in a falling market should look closely at whether a market review can actually deliver a reduction.

Outgoings are the building costs the landlord passes on: council and water rates, strata levies, insurance, building management and repairs. In a retail lease the landlord must give estimates before the lease and annually during it, and a tenant is generally not liable for an outgoing that was never disclosed. In a commercial lease the position is whatever the lease says, which is why the outgoings clause deserves as much attention as the rent.

Make good is the obligation to return the premises to a defined condition at the end of the lease. The single most important question is what that condition is: the state the premises were in at the start, or a bare base building shell. Where there is no condition report taken at commencement, the argument at the end of a 5 year term becomes a question of recollection. A photographic condition report at the start costs nothing and settles it.

An option must be exercised in the window the lease sets, in the way the lease requires. Miss it and the option is generally gone, however long the tenant has been there. For retail leases the landlord must give the tenant notice of the last date to exercise, and must do so within a set period before the term ends. If that notice is given late, the time to exercise is extended. For commercial leases there is no equivalent protection, so the date belongs in the tenant’s own diary.

A bank guarantee is security the landlord can call on if the tenant defaults. 3 months rent plus GST is common, though the amount is negotiable. In a retail lease the landlord must return the guarantee within a set period after the tenant has performed its obligations at the end of the lease. Tenants should also check whether the guarantee increases with the rent, and whether it is returned on assignment or continues to sit against the original tenant.

The permitted use clause defines what the tenant may do at the premises. Drawn too narrowly, it prevents the business evolving and it reduces the pool of assignees if the tenant later wants to sell. Exclusivity, meaning a promise that the landlord will not lease to a competitor in the same centre or building, is never implied. If it matters to the business it has to be negotiated and written in.

Most leases prohibit assignment or subletting without the landlord’s consent, usually with a requirement that consent not be unreasonably withheld. This clause matters most when the tenant sells the business, because the buyer will need the lease. A tenant should know before signing what the landlord can require, whether the outgoing tenant stays on the hook after assignment, and whether a guarantee from the incoming tenant will be demanded.

A demolition clause lets the landlord end the lease early to redevelop. A relocation clause lets the landlord move the tenant elsewhere in the centre. Both exist for the landlord’s benefit and both can destroy the value of a fit-out. In retail leases the Act sets minimum requirements for each, including notice and in some cases compensation. In commercial leases there is no such floor, so the protection is only what the lease itself provides.

For a retail lease the landlord must give the tenant a disclosure statement before the lease is entered into, setting out the key commercial terms including the outgoings the tenant will be asked to pay. The statement has to be given a minimum number of days in advance. Where it is not given, or is given but is materially incomplete or misleading, the tenant may have rights to terminate within the early part of the term and in some cases to claim compensation.

A retail lease in NSW is subject to a minimum 5 year term, counting the initial term plus any option. A shorter term is possible only where the tenant obtains a certificate from a lawyer, independent of the landlord, confirming that the tenant has been told what the minimum term rule is and has chosen to give it up. This is often called a section 16(3) certificate. Landlords frequently ask for one late in the process, and a tenant should understand what is being surrendered before signing it.

The Act makes certain provisions unenforceable in a retail lease regardless of what the parties agreed. Key money, meaning a premium simply for granting the lease, cannot be charged. Ratchet clauses on rent reviews are prohibited. The landlord generally bears its own costs of preparing the lease rather than passing them to the tenant. A clause appearing in a draft does not mean it is enforceable, which is the main reason a retail lease should not be signed on the basis that it looks standard.

In NSW, land tax cannot be recovered from a tenant under a retail lease. It can be recovered under a commercial lease if the lease provides for it. This is one of the clearest financial differences between the 2 types of lease, and it is a recurring annual cost, so a tenant who believes they are taking a retail lease should confirm that the premises genuinely fall within the Act.

We generally come back to you with the review and the list of amendments we recommend within 3 to 5 business days of receiving the lease and the heads of agreement. Urgent matters can be turned around faster where the documents are complete.

A first draft usually takes 5 to 7 business days from receiving your instructions and the heads of agreement. How long the matter then runs depends almost entirely on the other side, because negotiation is a conversation rather than a task.

A straightforward lease where both parties are responsive typically completes in 2 to 4 weeks. Retail leases take longer where the disclosure statement has not been prepared, and any lease takes longer where the heads of agreement left significant terms unresolved. The fastest matters are the ones where the heads of agreement was reviewed before it was signed.