Commercial Leases

Commercial & Retail Leases in NSW

A commercial or retail lease can represent a significant financial and legal commitment for both landlords and tenants.

Before entering into a lease, it is important to understand the rent and other costs, the length of the lease, options to renew, permitted use of the premises, maintenance and repair obligations, guarantees, insurance requirements and what must happen when the lease ends.

Russell Kelly & Associates assists landlords and tenants with the preparation, review and negotiation of commercial and retail leasing documentation in New South Wales.

Read our commercial and retail lease checklist for NSW businesses.

Commercial Lease Advice for Landlords and Tenants

A lease establishes the legal relationship between the landlord and tenant and sets out the rights and obligations of each party.

We can assist with matters including:

• preparing and reviewing commercial leases;
• negotiating lease terms;
• renewals and options;
• assignments and transfers of leases;
• variations of existing leases;
• rent and rent review provisions;
• outgoings and other occupancy costs;
• security deposits, bank guarantees and personal guarantees;
• repairs and maintenance obligations;
• permitted use of the premises;
• fit-out and refurbishment obligations;
• make-good obligations at the end of the lease; and
• leasing issues arising when a business is bought or sold.

Retail Leases in NSW

Some business premises are subject to the Retail Leases Act 1994 (NSW). Whether the Act applies depends upon matters including the type of business, the premises and the terms of the lease.

Where the legislation applies, landlords and tenants have additional rights and obligations that can affect matters such as disclosure, rent, outgoings, lease documentation, registration and dispute resolution.

It is therefore important to determine whether a proposed lease is a retail lease before the parties enter into the agreement.

Disclosure Statements for Retail Leases

Retail leasing legislation in NSW includes disclosure requirements for landlords and tenants.

A disclosure statement contains important information concerning the premises, the lease and the tenant’s financial obligations. Depending on the circumstances, this can include information about the lease term, options, rent, rent review, outgoings, fit-out, refurbishment and other matters affecting the tenancy.

For a retail shop lease, the lessor must generally give the lessee the prescribed lessor’s disclosure statement at least 7 days before the lease is entered into. The lessee must generally provide its disclosure statement within 7 days after receiving the lessor’s statement, unless a longer period is agreed.

Disclosure documents should be reviewed carefully together with the proposed lease before the parties commit to the transaction.

Rent, Rent Reviews and Outgoings

The lease should clearly identify the rent payable and how the rent may change during the term.

Depending on the lease, a tenant may also be required to contribute towards particular outgoings or other occupancy costs. These can represent a significant additional expense and should be understood before the lease is signed.

The treatment of rent and outgoings may also be affected by retail leasing legislation where that legislation applies.

Options to Renew

A lease may give the tenant an option to renew or extend the lease for a further term.

Options commonly contain strict requirements about when and how they must be exercised. Missing the required timeframe can have significant consequences for a tenant wishing to remain in the premises.

Landlords and tenants should review option provisions well before the relevant exercise date.

Permitted Use of the Premises

The permitted-use clause describes the business or activities that the tenant is authorised to conduct from the premises.

Tenants should ensure that the permitted use is appropriate for their current business and, where relevant, provides sufficient flexibility for anticipated changes to the business.

Other approvals may also be required from councils, strata bodies or other authorities depending upon the premises and proposed use.

Repairs, Maintenance and Fit-Out

A commercial lease should identify the parties’ responsibilities for repairs, maintenance and the condition of the premises.

Where a tenant is carrying out a fit-out, the lease may also deal with approvals, ownership of improvements, building works and the condition in which the premises must be returned at the end of the lease.

Make-Good Obligations

Many commercial leases require the tenant to carry out particular work when the lease ends. These requirements are commonly referred to as make-good obligations.

Depending upon the lease, a tenant may be required to remove its fit-out, repair damage, reinstate alterations or return the premises in an agreed condition.

Make-good provisions should be understood and negotiated before the lease is entered into because the cost at the end of the tenancy can be significant.

Assignment and Transfer of a Lease

A lease may need to be assigned to another tenant when a business is sold or where the existing tenant wishes to transfer its interest in the premises.

The lease and applicable legislation may specify procedures for obtaining the landlord’s consent and documenting the transfer.

Where a lease is connected with the sale or purchase of a business, the business transaction and lease assignment should be considered together.

Learn more about our Business & Commercial Law services.

Commercial Lease Disputes

Disputes can arise concerning rent, outgoings, repairs, options, breaches of lease, assignment, make-good obligations and other aspects of the landlord and tenant relationship.

Obtaining advice early can help clarify the parties’ rights and obligations and identify options for resolving the dispute.

Learn more about Commercial Litigation.

Learn more about Alternative Dispute Resolution.

Commercial & Retail Leasing Advice

Russell Kelly & Associates can assist landlords and tenants with commercial and retail leasing matters, from reviewing and negotiating a proposed lease through to renewals, assignments and other issues arising during the lease.

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This information is general in nature and does not constitute legal advice. Legal advice should be obtained about your particular circumstances.