Key Differences Between Retail Leases and Commercial Leases in Queensland
If you are considering to lease premises for your business, you have probably heard the terms ‘Retail Lease’ and ‘Commercial Lease’. But what is the difference in Queensland? Retail Leases differ from Commercial Leases because they are subject to the Retail Shop Leases Act 1994 (Qld) (*RSLA”). This article will outline key differences between Retail Leases and Commercial Leases in Queensland.
What is a Lease?
A Lease is a type of “contract” that sets out the rights and obligations of the owner of a property (the Landlord or Lessor) and the person or entity who will exclusively occupy the leased premises for a period of time (the Tenant or Lessee). Leases can be made verbally, but are usually a lengthy written document prepared by the Landlord’s solicitor.
Commercial Leases
Commercial Leases usually apply to premises with “no retail activity” such as a warehouse, industrial shed or an office in a commercial building. The distinction is in the use of the premises and if any form of retail selling to the public is to take place at the premises.
Features of a Commercial Lease
The Retail versus Commercial Lease distinction is often blurred for businesses that provide services (examples: law firm, town planning firm, or travel agency), and the test relies on their location. A business premises will be considered “retail use” (and therefor protected by the RSLA) if the premise is located in a retail shopping centre. However, if the same business is conducted in a commercial building (with no retail activity) with other commercial offices, then the Lease for that premises will be commercial.
Commercial Leases usually contain clauses for:
Payment of rent plus GST;
Term (ie commencement date and expiry date);
Method of Annual rent increases (with a rachet clause);
Payment of Outgoings (including land tax);
Obligations for Maintenance and repairs of the premises (including painting and air-conditioning); and
Payment of the Lessor’s legal fees.
Retail Leases
A Retail Lease is a lease where the Lessee’s business is in leased premises that are either “situated in a retail shopping centre” (ie building complex of 5 or more retail businesses) or “wholly or predominantly for the carrying on of a retail business”. (as defined in the RSLA).
There are exceptions as to what will be considered a Retail Lease. For example, if:
The size of the Retail Shop exceeds 1,000 square meters; or
Premises is a theme park or amusement park.
When do you enter into a Retail Lease?
It is important that your know you are in a Retail Lease, because your Landlord will be subject to additional obligations. Under the Retail Leases Act 1994 (Qld), a Retail Lease commences when a person either enters into possession of the retail shop or begins to pay rent as a Lessee or all parties have signed and dated the Lease.
Key Differences between Retail Leases and Commercial Leases
Although Commercial and Retail Leases have many similarities, they have distinct legal differences. In Queensland, the RSLA governs Retail Leases only, whereas the Property Law Act 1974 (Qld) regulates both Retail and Commercial Leases. Additionally, the parties to a Commercial Lease can contract out of many of the provisions of the Property Law Act. The RSLA can not be contacted out of. In Queensland. The underlying assumption is that a retail tenant has unequal bargaining power to its Landlord (usually a corporate shopping centre owner). The Queensland law will not interfere with the business arrangements of Commercial landlords and tenants.
Further Retail and Commercial Leases have 5 other distinctive differences:
Disclosure of information: The RSLA imposes obligations on Landlords to provide a tenant with a “Lessor Disclosure Statement” at least seven days before entering into the Lease. A Lessor Disclosure Statement is a summary of the key terms of the Retail Lease. It provides additional information about the shopping centre and all costs payable under the Lease. Failure to disclose certain information will give the Tenant a right to terminate the Lease up to 6 months after the Tenant enters into the Lease and/or claim reasonable compensation for loss or damage suffered, even after the parties agree to the Lease.
Unconscionable conduct and misleading or deceptive conduct: Retail leases also receive additional protections for Tenants concerning unconscionable conduct and misleading or deceptive conduct of Landlords.
Lease preparation legal fees: In a Retail Lease, the Landlord is not allowed to charge the Tenant for the Landlord’s Lease preparation expenses or Mortgagee Consent expenses. Whereas for Commercial Leases, the parties may negotiate who pays the Landlord’s legal fees in a Commercial Lease (usually the Tenant pays).
Outgoings: In a Retail Lease, there are restrictions of what Outgoings a Landlord can recover, such as a Landlord can not recover Land Tax.
Method of Annual Rent Review: In a Retail Lease, there can only be 1 method of rent review per annum and no “ratchet clause” permitted.
Key Issues
There are significant differences between Retail Leases and Commercial Leases. Retail Landlords and Tenants should understand what is permitted under the Retail Legislation in Queensland regarding their Lease Terms. They should also understand the consequences of non-compliance with the RSLA. In some instances, the Tenant has a right to early termination and/or compensation.
Whereas, Commercial Leases are “free for all” and require careful negotiations on the part of the Tenant to ensure that the Lease Terms are not overly onerous or heavily favouring the Landlord.
Further Legal Advice
If you need legal advice with respect to your leasing issues or business structure, our experienced Property and Business Solicitors at McKays can assist you.