Commercial Leases (Qld)
A commercial lease is a non-residential lease. It is a contract between the owner of a premises (the landlord) and a person (the tenant) who wants to use the premises to run a business. In Queensland, there are two categories of commercial leases: retail and non-retail. Retail leases are for premises which serve customers directly, such as shops, whereas non-retail leases are for premises such as warehouses and factories. Generally, commercial leases are governed by common law so parties have flexibility to come up with a contract that suits but there is legislation that applies to these contracts, such as the Retail Shop Leases Act 1994.
Negotiating a lease
Before negotiating a lease, a prospective tenant should research the premises thoroughly because the landlord and agent have limited disclosure obligations. A letter of offer or an intention to sign may be presented, and it is important the prospective tenant understands the terms and conditions before signing this.
Short term leases
Short-term leases offer flexibility but carry the risk that the business may not recover its investment. Terms of a short-term lease are usually the same as the terms for a long-term lease.
Long-term leases offer greater stability than short-term leases but lock in a business to pay rent when the business may not be able to trade. Leases of more than 3 years require registration with the Titles Registry.
The parties to the lease can negotiate its terms and conditions, considering factors such as:
- protection from competition, especially if the premises is in a shopping centre which has shops owned by the same landlord;
- an option to expand or diversify;
- outgoings payable and when they are due;
- clauses that may interfere with the usual running of the business;
- a right to renew or end the lease before it expires;
- an option to sub-let;
- a right to transfer or assign the lease;
- any impact a lease might have on a franchise agreement.
Commercial leases usually require the tenant to maintain the premises in good repair, which includes cleaning, repairing or replacing fixtures or fittings, and maintaining service infrastructure such as pipes or wiring. Structural maintenance is usually the responsibility of the landlord.
A landlord will often require a tenant to pay lease registration fees, mortgage consent fees and other charges such as authority approvals to operate from the premises.
Retail shop leases
To qualify as a retail shop lease, the business must be located within a retail shopping centre (a site with 5 or more businesses) , and the premises is used wholly or predominantly for the carrying on of a retail business.
A lease for a retail business must abide by the Retail Shop Leases Act. If any lease terms are inconsistent with the Act, the Act prevails. There are, however, some situations to which the Act does not apply, such as when:
- the business is a service station;
- the premises has a floor area or more than 1000sgm and is leased by a corporation or its subsidiaries;
- the shop is a temporary stall a trade show or cultural event;
- the premises is leased from the South Bank Corporation and the leases are perpetual or for longer than 100 years;
- the premises is within a theme park or amusement park;
- the lease is for an automatic teller machine or vending machine;
- the lease is for storage or parking.
The Act confers benefits and protections for a tenant, including restrictions on outgoings and rent reviews, and early determination of current market rent if there is an option to renew or extend the lease.
There is no minimum term for a lease to be considered a retail lease.
There are several key considerations for retail shop leases, including disclosure statements, money and ratchet clauses, and options ad renewals.
A landlord must provide a tenant with a disclosure statement that details important terms such as an estimate of outgoings. The landlord must provide this, and a copy of the proposed lease, at least 7 days before the tenant enters the lease. They must also provide to the tenant a certified copy of the signed lease within 30 days of it being signed.
Money and ratchet clauses
A landlord cannot request “key money” from a tenant in return for the grant, assignment or renewal of a lease. Also, any security deposit collected from a tenant must be refundable. A ratchet clause is one which prevents a reduction in rent. Such a clause is also prohibited.
Options and renewals
An option to renew is different to a lease renewal. An option to renew is a specific clause in the lease which entitles the tenant to renew the lease. If there is no option, or all options have been exercised, a new lease must be sought. In this case, if the lease is for less than 1 year, the landlord must advise the tenant at least 3 months before lease expiry whether renewal is possible and on what terms. If the lease is for more than 1 year, the period extends to 6 months.
For advice or representation in any legal matter, please contact Armstrong Legal.