Everything You Need to Know About Commercial & Retail Leases

For the past few weeks we’ve been sharing an informative Commercial Lease video series across our social media channels.

We broke everything down into four key topics:

What are Commercial Leases?

What are Retail Leases?

Retail Leases vs Commercial Leases

Negotiating a Commercial Lease

Commercial Leases

Whether you’re a savvy business person or looking at going into business for the first time, you’ll probably be aware that rent is one of the biggest operating expenses of a business.

Leases can be long, complicated documents and it can be difficult to appreciate the importance of getting them right. But like any business expense, it’s really important to give them due consideration before signing and entering into a lease.

It’s also really important to know what kind of lease applies to your business. Your business will either have a Retail Lease or Commercial Lease.

Commercial Leases apply to commercial property – which is generally for things such as warehouses, industrial sites or office buildings. It’s really important to know which one applies to your business.

Check out our video here.

Retail Leases

Retail Leases apply to retail premises which are distinguished from commercial property. There’s no hard and fast rule about what retail premises are and it differs slightly between States and Territories.

As a general rule, retail premises are those used wholly or predominantly for the sale or hire of goods via retail or the supply of services via retail. This will include most small to medium sized businesses such as cafes, art galleries, clothing stores and barber shops.

Certain businesses will be excluded from the Retail Leases legislation but this will depend on factors such as the size of the premises, the nature of the business and the occupancy costs.

If you’re not in a Retail Lease it’s likely that you’ll be in a Commercial Lease and the distinction is really important.

Check out our video here.

Retail Leases vs Commercial Leases

We keep saying it but it’s really important to distinguish between a Retail Premises and a Commercial Premises because there’s specific legislation that applies to Retail Leases and it’s different in each State and Territory. The legislation applies regardless of the terms of the lease and it provides kind of a safety net to level the playing field between the landlord and the tenant when negotiating the lease.

If there’s a term of the lease that’s inconsistent with the Retail Leases Act then that term will then become invalid.

For example, the landlord can’t require the tenant to pay the landlord’s costs for the preparation of the lease.

Where there is legislation regulating retail leases, there’s no equivalent legislation which regulates commercial leases. In other words, there’s no back up legislation which provides a level of fairness or fills in the gaps for Commercial Leases.

This means the rights and obligations of each party will primarily be based on the terms of the lease. It also means there’s more flexibility to negotiate the terms of the lease. One of the consequences of this is that the lease might be more favourable to one party than the other.

Going back to our earlier example, in this case the landlord is allowed to include a term in the lease that the tenant pay for the landlord’s legal costs in preparing the lease.

Check out our video here.

Negotiating a Commercial Lease

Because there’s no specific legislation regulating commercial leases, it’s especially important for a Commercial Lease to be carefully drafted. Template Commercial Leases are commonly used, they might be ok as a starting point but every business is different, every property is different and there’s no “one lease” that’s going to fit all.

Commercial Leases often apply for years or decades in some cases. Even a few small words can have major implications so negotiating a Commercial Lease can therefore cost you or save tens of thousands of dollars down the track.

It’s generally the landlord’s solicitor that prepares the draft lease documents and it’s not uncommon for the landlord to ask the tenant to pay the costs for doing so. The tenant might be under the impression that the landlord’s solicitor is impartial or because it’s been drafted by a solicitor that it’s going to be ok but the landlord’s solicitor is acting in the best interests of their client who is the landlord. It’s really important that the tenant seeks independent legal advice and has their solicitor look over the draft lease documents.

Check out our video here.

At Litton Legal we can assist you with any Commercial Lease or Retail Lease matters. Get in touch with our friendly team here.