A lease is a legally binding contract between you and a landlord. It allows you to occupy a shop or
‘premises’ (these terms can be used interchangeably). It is important for you to understand what it allows you to do, requires you to do and for how long. The lease usually tells you about:
- the space – by describing it (you should be provided with or obtain a plan showing the space)
- your rights
- your obligations and liabilities
- your landlord’s rights
- your landlord’s obligations and liabilities
- conditions which apply to your use of the space – things like the rent, other costs that you must pay, how long you can stay and in what condition you must leave the space when you vacate, and
- what you can expect about the retail space.
At what point do I have a lease?
In most cases a lease will start when a lease document is signed by the landlord and tenant. However, retail tenancy legislation recognises that a lease might start before this time – for example if you take possession
of the premises before the lease is signed, or a landlord offers in writing to rent space to you on quite clear terms and you accept that offer.
Definitions of a retail lease vary in each State and Territory and you should make sure of the definition in your State/Territory.
It is important to be careful and understand when you are committing yourself to a binding agreement. It is common for the landlord and tenant to agree the key terms of the proposed lease before the formal lease is prepared. Whether or not both parties are bound at this stage will depend on the actual wording used and the actions of both parties. Most commonly, however, this stage will only be to ‘approve’ the commercial terms of the lease deal and will not be a binding agreement until both the landlord and tenant have agreed to the terms of a formal lease document and signed that document. In some States and Territories, before the lease is binding, either party can change their mind and walk away.
Early access arrangements
Often a landlord will not permit a tenant to occupy premises until a formal lease document is signed and any other requirements have been met (for example, payment of a bond or evidence of insurance).
However, sometimes it might be in a tenant’s interest to occupy the premises before all of the formal documentation has been squared away. For example, a tenant might need to start cabling or other fit out works as soon as possible. In some cases an ‘early access’ arrangement can be organised with the landlord, but with agreement that this is not yet a lease. This kind of arrangement provides a tenant with
time to review and negotiate a lease as well as quick access to the premises. It is important that the terms of any ‘early access’ arrangement are still agreed on by the landlord and tenant, for example, by a simple letter setting out the basis on which access to the premises is granted to the tenant and protections for both
parties in the event that a formal lease document is not finalised. These arrangements may require that if the formal lease document is not agreed within a certain period, the tenant must remove its works and
vacate the premises. You should consider the risk that the lease will not proceed and, if this happens, the costs you will incur in removing any works. You should also consider whether, as in some States and Territories, you have created a 5 year lease.
An ongoing relationship
A lease can be a long-term commitment and create a long-term relationship with a landlord. It can
encourage investment and initiative and can prove to be a valuable relationship for both parties. A bad lease or a bad relationship, however, can limit your business, cost you a lot of money and sometimes cost you
your business. Whatever you say or do before you sign the lease forms part of the ‘relationship’ with your landlord. Be careful – make no promises you don’t mean and always keep notes on your discussions.
What is a registered lease?
A registered lease is a lease that can be registered on the title to the property (much like a mortgage is registered on the title to a residential property). Registration lets the public know of your interest in the land
– which is important in relation to people who may deal with the landlord after you have entered into your lease. In most States and Territories a lease for a term of greater than 3 years is required to be registered in order to pass an ‘estate’ to the tenant (i.e. it gives the tenant a recognised interest in the property itself as opposed to a purely contractual right). Having a registered lease gives a tenant additional protections and rights if something goes wrong.
As a general rule, if you have an option under a lease (i.e. a right to be granted another lease for a new term when your current lease expires), and the original term plus the option term is more than 3 years, the lease should be registered. This ensures the option can be enforced against a new landlord if the current landlord sells the building, otherwise it might not be enforceable.
An ‘agreement for lease’
This guide will also help you if you are about to sign an ‘agreement for lease’ of a retail space. This usually happens when the retail space is still being built or is being refurbished. Strictly speaking, you haven’t yet got a lease, but the terms and conditions of the lease are likely to be agreed and you and your landlord have promised to enter into the lease in the future, when the building or premises is ready. An agreement for lease is also a binding agreement.
So if you intend to take a lease or have an agreement for lease, you next need to know whether it is a retail lease under current retail tenancy legislation. If you have taken up an option or extension of a lease you may also be protected by the legislation. Ask your local retail tenancy office, small or retail business association, or fair trading office.
The most common difference between States and Territories is with extending or renewing leases. If you are renewing a lease, you need to refer to your local legislation. Please contact your local government department or business association.