Whether you’re a new or seasoned tenant or landlord, it’s important to understand the key aspects of your lease. To start, the most important would be the difference between both, a commercial lease and a retail lease.
Commercial Lease
A commercial lease is, for all intents and purposes, one that is not covered by the Retail Leases Act. It generally relates to a warehouse, industrial or office space that is not inherently connected to a retail location. But a blurring can occur with some professional and retail-oriented services (e.g. a doctor/dentist practice or travel agent located within a retail precinct). It may have an option to purchase the unit or building where the lease is in relation to the unit or the whole building. The term of a commercial lease is generally 3-5 years with often a lower rent in comparison to a typical retail lease because of the location demanded by a retail lease. Outgoings are generally more easily ascertainable as the premises are more likely to be separately metred. The landlord can claim fees for preparation of a lease that the tenant does not enter after consideration, and they may deduct these fees from a security deposit.
Retail Lease
By contrast, a retail lease is governed by the by the Retail Leases Act. It can relate to any premises, where that premises’ use relates to services to consumers, and are situated primarily in a retail-oriented location. If the premises is in a retail precinct it will almost always be a retail lease (e.g. Kmart Tyres, Star Carwash, etc). It is very unlikely there will be an option to purchase the premises, but options to renew the lease are more likely, and will generally come with more stringent conditions. Retail leases can have a term of 5- 15 years, with further options terms, ensuring optimal coverage in one location for a retail business. Notwithstanding,it is worth noting that many of the large shopping centres and institutional landlords do not offer option terms under retail leases.
The benefit to both parties of a longer term lease is a determinate rent review methodology annually, which can differ on the option period, and is elected by the parties in lease negotiations. The rent differs per location and size of the “lettable area” of the premises based on that location. But you pay more when you gain more traction from the consumer. Outgoings are quite often based on an equation between use of the premises (trading hours) and your lettable area, as premises are rarely metred separately. The landlord may not ask for money towards preparation of the lease, and purporting to do so from a security deposit is prohibited under the Retail Leases Act.
When it comes to leasing property, the preferences of owners and prospective tenants often intersect in ways that stakeholders may not fully recognise during negotiations. Contact our team to assist you in any commercial and/or retail lease inquries you may have.
This article was written by Racha Abboud, Partner, Jack Coles, Associate and Rita Ters, Lawyer.
