In Victoria, retail leases are governed by the Retail Leases Act 2003 (Act)1. A retail lease arises (subject to certain exceptions) when parties enter into a lease arrangement for a premises used wholly or predominantly for the retail sale or hire of goods or services for a term greater than 1 year.
Here are 3 important issues that all tenants and landlords should be aware of regarding retail leases.
When a landlord enters into negotiations with a potential tenant about a lease, the landlord is required under the Act to promptly provide a copy of the following:
Additionally, at least 7 days before entering into the lease, the landlord must give the tenant a disclosure statement. The disclosure statement is an important document that gives the tenant an overview of the lease. If a tenant has not been given the disclosure statement before entering into the lease and it has notified the landlord in the required time period, the tenant is not liable to pay rent for the period starting from the day notice was provided until and including the day the disclosure statement is provided. The type of disclosure statement provided by the landlord will differ depending on whether the premises is located in a shopping centre or not. The relevant form of disclosure statements can be found at the Victorian Small Business Commissioner website.
As past disputes have shown, the recoupment of outgoings can be a hotly contested issue between landlords and tenants. Before entering into a lease, tenants should form a thorough understanding of the estimated outgoings expected to be paid based on the landlord’s disclosure statement and copy of the lease. If there is any confusion or uncertainty, making enquiries before finalising the lease is advisable. Under the Act, landlord’s outgoings can account for any of the following:
However, it is important to note that capital costs cannot be recovered by the landlord and where a premises is located in a shopping centre, the tenant is only obliged to pay the outgoings that benefit the premises.
Another contentious issue is the obligations of landlords and tenants when it comes to repairs and maintenance. A well-executed lease should clearly set out the exact obligations of both parties and parties should have a thorough understanding of these obligations. The Act provides guidance as to these obligations and a number of VCAT decisions over the years have lent further assistance.
Landlords are responsible for maintaining the following in a condition that is consistent with the condition when the lease was first entered into:
Where a landlord fails to meet its responsibilities, the tenant may carry out the work needed and recover the cost from the landlord, or set-off the cost against rent. It is however important for tenants to note that a landlord’s repair and maintenance responsibilities are waived in the following situations:
As for tenants, their responsibilities include maintaining the premises in the same condition as at the start of the lease subject to fair wear and tear and ensuring the premises are clean and tidy.
Leases can be complex arrangements. Nevertheless, doing the necessary homework will pay off in the long term. Many disputes can be avoided if parties take the time at the outset to develop an in-depth understanding of leasing provisions before entering a lease arrangement.
Posted on: 16 June 2016