Retail & Commercial Leases – Knowing the Difference

Hispanic woman hanging open sign on door

As an owner it is important to understand the difference between a Retail and Commercial lease, it is essential that the right type of lease is in place as the Lease acts as the legally binding agreement between the Lessor and Lessee.

Retail Leases in NSW are governed by the Retail Leases Act 1994 No 46, Retail Leases
apply to a premises in which the business conducted falls under Schedule 1 of the Act, for example Art Galleries, Building Supplies Shops, Cafés and Department Stores just to name a few.  Premises that are also located in a Retail Shopping Centre are also governed by the Act. However there can be variables applied to these conditions and as a result the Lease will no longer be governed under the Retail Leases Act. A few of these variables are; if the lease has a term of 25 years or more, the premises has a lettable area of 1000sqm or more, or a premise in an office tower that forms part of a retail shopping centre.

The Retail Leases Act creates an additional level of regulation which governs the  relationship of Lessees and Lessors and stipulates procedure and practice where it applies. The overall theme of the Act is to provide additional protection to a Retail
Tenant, some key areas that demonstrate this are; 

Retail Tenants must be supplied with a copy of the proposed lease at the negotiation stage while a Commercial Tenant would not usually be supplied a proposed lease until negotiations have been finalised.

A Lessor Disclosure Statement which details important information such as the outgoings payable must be issued to the Retail Tenant before the commencement
of the lease however this is not required for a Commercial Lease.

The preparation costs to have a Retail Lease prepared cannot be passed onto the Tenant
however the preparation costs of a Commercial Lease can be passed onto the Tenant.

When a Retail Tenant pays their required security deposit this must be lodged with Retail Tenancy Unit however a Commercial security deposit is not required to be
lodged with a regulated body or government department.

The Retail Tenant is protected under the Act with respect to rent payable and outgoings
recoverable by the Lessor while a Commercial tenant’s Lease will detail the  requirements and the lease will preside in respect to rent payable and outgoings recoverable.

A retail Lease is not as straight forward as a Commercial Lease nevertheless the Act provides clear guidelines on what is required, if the right considerations are applied the lease term will run smoothly without dispute.

Felicity Rice
Commercial Property Manager

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