Signing a lease for a shop or office is one of the biggest commitments a small business makes. Once signed, you are usually bound to pay rent and outgoings for the full term. Business Victoria notes that leases usually cannot be cancelled and ending one early can be costly. A few hours spent checking the details first can save years of regret.
The rules depend on what kind of premises you are leasing and where. Retail shops are covered by special laws in each state and territory. Other commercial leases rely mostly on the contract itself. Knowing which category you fall into is the first job.
Retail leases and commercial leases
Each state and territory has its own retail leasing law. In Victoria it is the Retail Leases Act 2003, and in New South Wales it is the Retail Leases Act 1994. Western Australia uses the Commercial Tenancy (Retail Shops) Agreements Act 1985. Each Act sets its own coverage tests, timelines and protections.
These laws give retail tenants rights that a standard office or warehouse lease may not offer. If your premises fall outside the retail rules, the lease document is usually your main protection. That makes careful reading even more important. A lawyer can tell you whether a retail Act applies to your premises.
Disclosure statements come first
Retail leasing laws require the landlord to hand over key information before you commit. This is done through a disclosure statement. Timing differs between states. The Victorian Small Business Commission guide to entering a retail lease says a Victorian landlord must give the statement at least 14 days before the lease is entered into.
In New South Wales and Western Australia the period is at least seven days. The NSW Small Business Commissioner says the landlord’s statement covers the term, options, rent, rent reviews, fit out, outgoings and trading hours. It also covers known disruptions such as renovations or nearby road works. The NSW tenant must then give its own disclosure statement within seven days, or ask for more time.
Read the statement against the lease itself. The NSW Commissioner advises that neither party should sign unless the disclosure statements are correct. If something does not match, raise it and keep negotiating. The WA guidance says the statement should include any promises or commitments that influenced your decision.
Term, options and rent reviews
Check the start date, end date and any options to renew. In Victoria, a retail lease term including options must be at least five years, although a tenant can ask for a shorter term. Find out exactly how and when an option must be exercised. In WA, landlords must send reminder notices about renewals and options.
Rent reviews deserve close attention. A lease may lift rent by CPI, by a fixed percentage or to market rent. Ask how often reviews happen and what the method is. Also ask whether there is a rent free period while you complete your fit out.
Outgoings and other costs
Rent is only part of the cost. Outgoings can include rates, taxes, insurance and utilities. Business Victoria suggests agreeing who pays each of these before you sign. The WA Small Business Development Corporation guidance on leases adds that you should know the estimated annual amount and how costs are adjusted each year.
Legal costs are another point to watch. In Victoria, the landlord cannot pass on the cost of preparing the lease or the disclosure statement. In WA, landlords must cover their own legal costs of complying with the Act. Victorian landlords must also hold a security deposit in an interest bearing account, with the interest forming part of the deposit.
Permitted use, assignment and make good
The permitted use clause says what business you can run from the premises. Business Victoria suggests checking that it suits your operations now and leaves room to grow. You may also need a planning permit or licence, and the lease should reference these. A narrow clause can stop you adding a new product or service later.
Assignment matters if you might sell. A right of assignment lets you transfer the lease to a buyer of your business. Anyone buying an existing business should check the lease early too. If you are buying a clinic, lease terms belong on the same list as the other hidden perils of buying a dental practice.
Make good clauses set out what you must do when you leave. They can require you to remove your fit out and return the space to an agreed condition. Ask for a clear description of the premises at the start. Dated photos taken on the day you move in can help settle arguments when the lease ends.
Clauses that limit liability
Leases often contain indemnities and releases that move risk on to the tenant. Read how these clauses work, because they can matter as much as the rent. Our guide to waivers, disclaimers and exclusion clauses explains how these terms differ. Check your insurance obligations at the same time.
Shopping centre leases bring extra questions. Business Victoria suggests checking core trading hours, fit out rules, marketing contributions and any redevelopment plans. Redevelopment could mean relocation to a less desirable site. The WA guidance also flags the landlord’s ability to end a lease early to redevelop.
Getting advice before you sign
The NSW, Victorian and WA guidance all recommend getting advice before signing. Knowing how a business lawyer can help you start and run a business is useful here, as lease review is a common part of that work. Small business commissioners in several states also offer advice and low cost dispute resolution. In Victoria, most retail lease disputes must go to the VSBC before a claim can be made at VCAT.
Leasing sits within a wider set of business rules. Our overview of the regulations of commercial law covers some of that broader picture. Laws and processes differ by state and territory, and they change over time. Always check the current rules where your premises are located.
Frequently asked questions
Does a retail leases Act apply to my office?
It depends on the state and the type of premises. Each Act has its own tests for what counts as a retail lease. Some office and industrial leases fall outside them. A lawyer or your state small business commissioner can help you check.
How early should I get the disclosure statement?
In Victoria it is at least 14 days before the lease is entered into. In New South Wales and Western Australia it is at least seven days. If you did not receive one, raise it before signing. Your state commissioner can explain your options.
Can the landlord charge me for their legal costs?
For Victorian retail leases, the landlord cannot pass on the cost of preparing the lease or disclosure statement. In WA, landlords covered by the Act must pay their own legal costs of complying with it. Other states have their own rules. Check the lease and the Act that applies.
Can I end a commercial lease early?
Usually only if the lease allows it or the landlord agrees. Leases usually cannot be cancelled, and leaving early can be expensive. Check for an early termination clause before you sign. If you might sell the business, look for a right of assignment too.
This article is general information about Australian law only and is not legal advice. Retail leasing laws differ between states and territories and change over time. Speak with a qualified lawyer before signing a lease.
