As a general rule, the parties to a commercial lease are free to agree to whatever terms they choose, and there are no minimum standards or protections for a tenant. Terms are determined by the market and negotiation between the parties. Commercial leases usually heavily favour a landlord more so than a tenant.
Whilst the parties to a retail shop lease are also generally free to negotiate the terms of the lease, the RSL Act provides a safety net of certain minimum lease standards that apply to retail shop leases and protect tenants.
The following points illustrate some of the key differences between the two forms of each lease (as applies in Queensland)
As premised above, parties to a commercial lease are generally free to agree to whatever terms they choose, and there are no minimum standards or protections for a tenant. Conversely, in a retail lease, the lessor is obligated to disclose certain information to the tenant. Specifically, a draft of the lease and disclosure statement must be provided by the lessor to the tenant at least seven days before entering into a lease.[1] Similarly, a lessee must give the lessor a disclosure statement in this timeframe.[2] However, the tenant can, by written notice to the lessor, waive the lessor’s obligation to provide a disclosure statement in this timeframe, as long as it is provided prior to entering the lease.[3] Obligations on the lessor in relation to disclosure requirements on renewal under an option, and consequences for failure to comply with the disclosure obligation are prescribed in the Act.[4] A tenant must provide a financial advice report and legal advice report to the lessor prior to entering into a lease.[5]
For a commercial lease, rent reviews are generally conducted annually, either as a fixed percentage increase or a CPI review on each anniversary of the commencement date. If there is an option exercised under the lease, then market rent review generally applies at the commencement of any option term. Inclusion of a ratchet clause (which operates to prevent rent decreasing when it is subject to review) is not unusual in a commercial lease.
Conversely, ratchet clauses are void in retail leases under section 36A of the Retail Shop Leases Act 1994 (Qld) (‘the Act’), as are certain rent review provisions listed under section 36 of the Act. The applicable rent may be reviewed using different bases during the term of the lease, but each review must be made using only one basis.[6] For example, by reference to the current market rent of the leased shop[7], an independently published index of prices, costs or wages[8], or a fixed percentage of the base rent[9] (amongst others). If a retail lease provides for an option on the lessee’s part to renew or extend the lease at the current market rent, and current market rent has not been agreed between the parties, the Act allows a tenant to request the current market rent to be determined[10]. The tenant can request this:
If the current market rent cannot be agreed between the lessor and lessee, a specialist retail valuer may be appointed, the cost of which will be shared between the parties.[11] The Act contains provisions[12] around the process of how the current market rent is determined in this manner.
In commercial leases, specifically in a net lease (where the tenant pays a base rent together with a contribution to outgoings), most outgoings are recoverable from the tenant. For a retail lease, under the Act, there are certain outgoings which cannot be recovered by the landlord such as land tax and insurance premiums on loss of profits.[13] The retail lease must specify the outgoings payable by the lessee[14], as well as how they are determined and apportioned[15], and how they can be recovered from the tenant.[16] A lessor must give the lessee an annual estimate (in the prescribed form) of the lessor’s apportionable outgoings for which the lessee will be liable.[17] A statement of the lessor’s apportionable outgoings must be given to the tenant in the approved form within 3 months after the end of the period to which the outgoings relate[18], The statement will compare the estimates with the actual amounts spent by the lessor for the outgoings during the relevant period.[19]
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[1] s 21B(1)
[2] s 22A
[3] s 21B(2).
[4] s 21E, 21F.
[5] s 22D(1).
[6] s 27(4).
[7] s 27(5)(a).
[8] s 27(5)(b).
[9] s 27(5)(c).
[10] s 27A(1).
[11] s 34.
[12] ss 28A-35.
[13] s 7(3).
[14] s 37(1)(a).
[15] s 37(1)(b).
[16] s 37(1)(c).
[17] s 38A(1).
[18] s 38B(2).
[19] s 38B(c).
The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.