If you plan to operate a business at a premise, you will have to enter into a lease with the Landlord. When considering a lease, you might notice words such as “commercial” or “retail” used together with the term “lease”. What are the differences between the two and which one applies to you?
Commercial leases apply to premises such as office spaces, industrial spaces or warehouses. These premises do not typically have retail activity.
On the other hand, retail leases apply to premises used for the sale and supply of goods or services, such as cafes or restaurants.
Retail leases are governed by the Retail Leases Act 2003 (the Act). The Act defines retail premises as premises that is used wholly or predominantly for:-
- the sale or hire of retail goods or provision of retail services; or
- the carrying on of a specific business or a specified kind of business that the Minister determines, based on the kind of business, tenant or lease.
Some of the key differences between a commercial lease and a retail lease includes:-
Under the Act, the Landlord has an obligation to disclose specific details about the premises to the Tenant, including but not limited to, the lettable area of the premises, allocated parking, details of head lease (if any) and estimated outgoings.
This disclosure statement must be given by the Landlord to the Tenant at least 14 days before entering into a retail premises lease. Failure to disclose gives the Tenant the right to terminate the lease.
Costs associated with lease
Under a retail premises lease, a Landlord cannot claim from the Tenant expenses relating to the negotiation, preparation and execution of the lease or obtaining the consent of a mortgagee to the lease. The Tenant is also not liable to pay for land tax, sinking fund for the premises or capital costs.
The Tenant is also not liable to pay for outgoings unless the lease specifies the outgoings that are to be recoverable from the Tenant. However, a Landlord can claim reasonable legal costs for any assignment of the lease or a sub-lease.
Unlike a retail premises lease, the terms of a commercial lease depends on the negotiation between parties. The same safeguards afforded under the Act do not apply to a commercial lease, unless specified in the lease in accordance to the parties’ intentions. As such, commercial leases can vary from premises to premises.
Which lease applies to me?
It ultimately depends on the use of the premises and whether there is any form of buying and selling to the public on the premises.
A business premises will usually fall under retail if located in a shopping centre. The Act may also apply to premises where they are used for selling goods or services to other business, not just persons of public.
The test applied by the courts is known as “the ultimate consumer test”. Essentially, the person acquiring the goods or services is the ultimate consumer of the goods or services.
It is important that business owners understand the type of lease they are entering into with a Landlord. If you require legal advice on leases or assistance in reviewing your lease, please contact us at (03) 9000 5610 or email us at email@example.com.