IS YOUR COMMERCIAL LEASE NOW A RETAIL LEASE?
Written by Ben Harris
The Retail Leases Regulation 2022 (NSW) (Regulation) expands the coverage of the Retail Leases Act 1994 (NSW) (Act) to include new categories of retail businesses.
Applying to leases which commence from 1 January 2023, the Regulation includes, among others, the following retail businesses:
• gymnasiums and fitness centres, including yoga, barre, pilates and dance studios; and
• small bars with a maximum patron capacity of 120 [people].
These businesses were not previously retail shop businesses for the purposes of the Act.
In order for a lease to be considered a retail lease under the Act, the leased premises must:
• be used, or proposed to be used:
o wholly or predominantly for the carrying on of a retail business prescribed by the Regulation; or
o for the carrying on of any business in a retail shopping centre (whether or not the business is a retail business prescribed by the Regulation); and
• not be explicitly excluded by the Act.
Regardless of whether you are a landlord or tenant, if you intend to lease a premises for the predominant use of a gymnasium, fitness centre (including yoga, barre, pilates and dance studios) or small bar, your legal rights and obligations have changed.
The Act, however, does not apply to:
• commercial leases entered into prior to 1 January 2023; or
• commercial leases entered into under an option to renew granted, or an agreement made, prior to 1 January 2023.
In light of the recent changes, landlords and tenants must be vigilant when entering into new leases for a business prescribed by the Regulation. If a commercial tenant has been holding over in a premises, and the terms of a new lease are agreed, a retail lease may be required and other requirements of the Act may need to be satisfied.
As a landlord of a retail lease, amongst other things, you will be:
• unable to recover lease preparation expenses (such as legal fees) from the tenant;
• required to provide a disclosure statement or disclosure update to the tenant when entering or renewing a lease;
• required to lodge any cash security bond received from the tenant with the NSW Department of Fair Trading;
• required to provide various notices to the tenant within strict time frames; and
• subject to statutory prohibitions on unconscionable, or misleading and deceptive conduct.
Importantly, any clause within a retail lease is void if it is inconsistent with a provision of the Act. Therefore, should a commercial lease be relied on where the statutory requirements have changed and a retail lease is required, key provisions may be voided and, consequently, be unenforceable.
Retail leases are drafted to ensure all requirements of the Act are met, whilst commercial leases are not obliged to adhere to the provisions of the Act.
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