Retail Lease Act - Commercial Lawyers

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The Retail Lease Act NSW, 1994 (the Act) applies to the leases for retail shops and also for premises in a retail shopping centre. Signing a retail lease agreement is a financial commitment for both the Lessee and the Lessor. So before you sign a lease, make sure you have completely understood and agreed with the clauses in the commercial lease contract.

Legislations concerning retail leases and property vary from state to state, and our Sydney commercial conveyancers are able to assist with the comprehension of complex state laws.

When looking to enter a tenant/landlord agreement, it’s imperative that the Retail Lease Act NSW is considered before any commitments have been made. Our team of expert commercial property lawyers in Sydney are able to help from the very beginning to make sure you’ve sought comprehensive legal counsel.

For an overview of the main provisions of the Retail Lease Act 1994 prevailing in New South Wales (NSW), keep reading.

What is the Retail Leases Act, NSW?

In NSW, the Retail Leases Act 1994 is the authority on retail shop leases between the tenant and the landlord. The Retail Lease Act NSW contains the rights and obligations of both parties. Retail shop tenants and landlords must abide by the legislation when entering into leases and conduct themselves in accordance with the Act during the period of the lease. The Act supersedes the terms of any existing retail shop lease; if it is not consistent with the Act, then the lease is void.

Key takeaways of the Retail Leases Act, NSW are:

Disclosure provided by lessor

Before a Lessor advertises a retail shop for lease, the Lessor must have a:

(a) Copy of the proposed lease; and

(b) Copy of the Retail Tenancy Guide

Available for inspection by the prospective Lessee, a disclosure statement must also be given to the Lessee by the Lessor 7 days prior to the lease agreement. This disclosure statement confers all the essential terms of the lease as well as any representation made by the Lessor or by the Lessor’s agent to the Lessee.

Terms of lease

The Retail Lease Act NSW does not apply to leases for a term of less than 6 months. However, when a Lessee occupies a retail shop for more than 1 year, either by a series of consequential short terms or under the holding over provisions of a 6 month lease, the terms of the Act come into effect.

In Australia, if the duration of a lease changes mid-term, it usually requires mutual agreement between the landlord and tenant. Lease agreements are legally binding, so any adjustments to the lease period must be formally documented to avoid disputes.

1. Lease extension or reduction mid-term

If both parties agree to extend the lease, a lease variation agreement or a new lease must be signed, outlining the updated term.
If the lease is shortened, both the tenant and landlord should negotiate an early termination agreement, which may include financial penalties depending on the lease terms.

2. Impact on fixed-term and periodic leases

For a fixed-term lease, mid-term changes must be agreed upon in writing, as the lease was originally set for a specific duration.
For a periodic lease (month-to-month or week-to-week), the duration is more flexible, and changes generally require proper notice periods as per state-specific tenancy laws.

3. Legal implications of short-term leases

A lease that is changed to a short-term agreement (less than 6 months) may be subject to different legal protections for tenants, depending on state regulations.
Some states, such as Victoria and NSW, have specific laws for short-term rental accommodation, which differ from standard residential tenancy agreements.

Tenants and landlords should always document lease changes in writing, either by amending the lease agreement or drafting a new contract. If disagreements arise, state-based tenancy dispute resolution services can assist in resolving issues fairly.

Security bonds and security deposits

This sum of money is required by a Lessor to secure the performance of the Lessee’s obligations and it is normally about 3 months’ rent, depending on the length of the lease term. However, the Lessor must deposit the security received for retail shop leases, with the Director-General of the Department of State and Regional Development within 20 days of such receipt.

Disputes over security bonds often arise when landlords withhold funds for alleged damage, unpaid rent, or lease breaches, while tenants argue for the full refund of their deposit. If a disagreement occurs, the resolution process generally follows these steps:

Negotiation between parties – The tenant and landlord should first attempt to resolve the dispute directly by discussing the issue and reviewing the lease agreement.
Mediation or Alternative Dispute Resolution (ADR) – If direct negotiations fail, tenants can seek mediation through the relevant tenancy tribunal or small business dispute resolution services.
Tribunal or court proceedings – If mediation does not resolve the dispute, either party may escalate the matter to NCAT in NSW for a legal ruling.

To protect your security deposit:

Document the property’s condition before moving in and upon exit with photos and reports.
Keep detailed records of rent payments and correspondence with the landlord.
Understand the lease terms regarding bond deductions and obligations upon lease termination.

Up-front fit-out costs

The Lessor can sometimes ask the Lessee to contribute to the cost of fixtures, finishes, fittings and equipment of the premise. This contribution may be payable as a lump sum amount prior to the commencement date of the lease, or by the way of periodic contributions in addition to the base rent.

However, the maximum amount payable by a Lessee for works conducted by a property owner to enable the Lessee to fit out premises must be agreed in writing between the parties before a lease for the premises is entered into. A Lessor cannot require a Lessee to pay more than the agreed maximum amount. Owen Hodge Lawyers can also assist you with any business and construction law.

Outgoings

Outgoings are a charge by a Lessor in addition to the rent. Outgoings are specific to the lease where they apply directly to the premises such as water rates, council rates and land tax.

Market rent reviews

The adjustment of the base rent during the term of lease may be subject to a market rent review. The Act sets out the procedure for determination of market rent under Section 32A. The Lessor and Lessee may apply to the Tribunal for the appointment of two specialist retail valuers. The valuers will conduct a review and determine the current market rent accordingly.

A market rent review is a process in commercial leasing where rent is adjusted to reflect current market conditions rather than a fixed increase. This often occurs at specific intervals stated in the lease agreement, such as every three to five years or at lease renewal.

Example of a market rent review scenario

Consider a retail tenant in Sydney leasing a shop in a busy shopping district. Their lease includes a market rent review clause every five years. When the rent review period arrives:

The landlord argues that the area’s commercial property values have increased due to new developments and higher foot traffic, justifying a 25% rent increase.
The tenant believes this increase is excessive, citing vacancies in nearby shops and declining retail sales, and requests a smaller adjustment.

Since the lease specifies a market rent review, both parties may seek independent property valuations to determine fair market rent.

Resolving rent review disputes through the tribunal

If the Lessor and Lessee cannot agree on the new rent:

They can refer the matter to NCAT.
The Tribunal may appoint an independent valuer to assess the rent based on comparable properties, market trends, and economic conditions.
After reviewing evidence, the Tribunal can set a fair rent amount, which both parties must comply with.

Rent reviews can significantly impact business expenses and profitability. If you’re negotiating a market rent review or facing a dispute, consulting a commercial lease lawyer can help protect your interests and ensure a fair outcome.

Relocation

If the Lessor has proposed to relocate the Lessees during the tenure of lease, the Lessor will have additional obligations to pay the Lessee reasonable fit-out costs and legal costs for relocating premises. A 3 months relocation notice needs to be served to the lessee by the lessor prior to relocation. If you are in dispute over an agreement to relocate, you may need to involve a commercial lawyer to ensure you have sought appropriate legal counsel.

Market rent review and Lessee rights during forced relocation

Forced relocation occurs when a landlord requires a tenant to vacate the premises before the lease expires, usually due to redevelopment or repurposing of the property. Tenants in this situation have legal protections, including:

Compensation rights – Many leases contain relocation clauses that entitle tenants to financial compensation for moving expenses, fit-out costs, or business interruption.
Alternative premises – The landlord may be required to offer a suitable alternative location within the same commercial precinct.
Reasonable notice – Landlords must provide adequate written notice and time for tenants to relocate or negotiate an alternative solution.
Negotiation for favourable terms – Tenants can negotiate rental discounts, contribution to relocation expenses, or lease termination without penalty.

How commercial leasing lawyers can help

A commercial leasing lawyer plays a vital role in protecting Lessee rights during market rent reviews and forced relocations by:

Negotiating fair market rent adjustments to prevent excessive rent hikes.
Reviewing lease terms and relocation clauses to ensure tenants receive adequate compensation.
A retail lease lawyer represents tenants in Tribunal disputes if an agreement cannot be reached.
Ensuring compliance with lease renewal rights and securing better lease terms.

Assignment of lease

The Lessee may wish to assign a lease to another person during the term of the lease with due consent from the Lessor. This is common in commercial property leases, where businesses may need to exit a lease early or shift to a new location. The time period within which a Lessor must make a decision with regard to the proposed assignment is 28 days. A well-negotiated lease assignment can be beneficial for both the lessee and lessor, depending on the circumstances. Consulting commercial lease lawyers in Sydney can ensure a smooth transition while protecting the rights of all parties.

Scenarios where lease assignment benefits the Lessee

Business sale or exit strategy
- A retail shop owner in Sydney decides to sell their business before their lease expires. Assigning the lease to the new business owner allows them to exit without breaching the lease agreement.
- This prevents penalties and ensures business continuity under the same lease terms.
Downsizing or relocating a business
- A tech company leasing an office space in the CBD outgrows its premises and needs a larger space. Assigning the lease to another tenant allows them to move without financial loss.
- If they simply terminated the lease, they could be liable for ongoing rent and penalties.
Reducing financial burden
- A hospitality business struggling financially can assign the lease to another operator, preventing financial strain and potential legal action for lease default.

Scenarios where lease assignment benefits the Lessor

Keeping the property tenanted
- If a Lessee can no longer meet rental payments, allowing a lease assignment ensures that the property remains occupied and generating income.
Securing a more reliable or profitable tenant
- A Lessor may approve an assignment if the incoming tenant has stronger financial backing or a better business reputation, reducing the risk of rental defaults.
Faster lease transfers for business sales
- Property owners benefit from smoother lease transitions, especially in high-demand commercial locations, where businesses are frequently bought and sold.

How commercial lease lawyers in Sydney can help

Negotiating favourable assignment terms for tenants and landlords.
Ensuring compliance with lease conditions and legal requirements.
Drafting and reviewing assignment agreements to protect all parties involved.
Resolving disputes if the landlord refuses consent or terms are unclear.

Advertising

Lessors must provide details to the Lessees every 6 months regarding the promotions or advertising levy imposed on the Lessees. Lessees are entitled to withhold contribution of payments in respect to advertising or promotion if a statement with the above details is not provided by the Lessors.

For a comprehensive and well-drafted lease agreement, the Lessors and the Lessees should familiarise themselves with all the provisions stated above. Our team of experts are adept in drafting lease agreements. For any assistance, contact a retail lease lawyer at Owen Hodge Lawyers.

Resolving disputes over advertising levies under the Act

In Australia, many commercial leases, particularly in shopping centres, require tenants to contribute to an advertising and marketing levy. This levy is intended to fund promotional activities that benefit all tenants by driving customer traffic. However, disputes can arise when Lessees believe the advertising levy is excessive, mismanaged, or lacks transparency. The Retail Leases Act in various states provides protections for lessees, ensuring fair and accountable use of these funds.

How advertising levy disputes are resolved

If a Lessee disputes an advertising levy, they have the right to:

Request detailed financial statements – Under the Retail Leases Act, landlords must provide annual financial reports showing how the levy is spent. If this is not provided, tenants can challenge the validity of the charges.
Seek mediation through the tribunal – If a dispute arises, Lessees can refer the matter to NCAT who will review lease agreements and spending records to determine whether the levy is fair and compliant with the Act.
Challenge unjustified increases – If a landlord significantly raises the levy without justification, tenants can dispute the increase and seek a review under their state’s leasing laws.

Lessee’s right to withhold payment for lack of transparency

Under some state-specific Retail Leases Acts, tenants have the right to withhold payment of advertising levies if:

The landlord fails to provide financial records detailing how the levy is spent.
The marketing fund is mismanaged, with little or no benefit to tenants.
The lease agreement does not clearly define the scope and obligations of the advertising levy.

However, withholding payments should be done with legal advice to avoid breaching the lease. Consulting commercial lease lawyers can help lessees negotiate levy disputes, ensure transparency, and take legal action if needed.

Contact us

At Owen Hodge Lawyers, we are committed to providing exceptional legal support. We are always happy to assist clients in understanding the full ramifications of any and all of your legal needs.

For further information on commercial property leases or if you need counsel from a commercial lease lawyer, please contact the offices of Owen Hodge Lawyers today on 1800 770 780.

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