Are you thinking about leasing commercial premises? These commercial lease tips for tenants explain the rules that matter most in Victoria. A commercial lease is a legally binding agreement between a landlord and a business tenant. It sets out each party’s rights and responsibilities for using the premises. Commercial leases are more complex than residential leases, and their terms vary widely from one lease to the next.
Retail Lease or Non-Retail Commercial Lease?
Victorian commercial leases fall into two groups. The group your lease falls into decides how much legal protection you have.
Retail Leases
The Retail Leases Act 2003 (Vic) governs retail leases. It adds obligations for landlords and protections for tenants. Those protections override anything the parties agree to the contrary, and they can have a major financial impact.
A lease is a retail lease when the tenant uses the premises wholly or predominantly for retail purposes. That means the retail sale or hire of goods, retail services, or a business the Minister specifies. The Act generally applies to leases of one year or more. Some premises fall outside it, such as those of listed companies and their subsidiaries and premises where occupancy costs exceed a prescribed amount. The Victorian Small Business Commission (VSBC) says that amount is currently $1 million a year. It also says the Act generally does not cover wholesale, manufacturing and storage tenants. The VSBC explains what counts as retail premises.
Non-Retail Commercial Leases
A non-retail commercial lease sits outside the Retail Leases Act. Warehouses, industrial sites and offices with no retail activity usually fall into this group. Because the Act does not apply, you have fewer statutory protections, and the lease terms matter even more.
The Act applies based on how you actually use the premises, and a retail lease cannot opt out of it. Calling a lease non-retail therefore does not change the result. Get advice early to confirm which type of lease you have.
What Protections Does the Retail Leases Act Give Tenants?
If the Act applies, you gain several important protections.
Disclosure Before You Sign
The landlord must give you a disclosure statement and a copy of the proposed lease at least 14 days before you enter the lease. If the landlord gives them late, the lease start date moves later. You may also have rights to withhold rent or end the lease if the landlord fails to disclose or gives misleading information. These rights run to strict deadlines, so take advice quickly. The VSBC explains accurate lease information in more detail.
Outgoings
A landlord can recover outgoings only if the lease specifies them. The landlord must give you an itemised estimate before the lease starts. The Act also bans recovery of certain costs, including capital costs, depreciation and land tax. Check the outgoings rules before you agree to any charge.
Minimum Five-Year Term
A retail lease must run for at least five years, counting any options. The law extends a shorter lease to five years automatically. Only the tenant can waive this protection. The tenant requests a five-year waiver certificate from the VSBC, which the VSBC issues online at no cost. A landlord cannot waive it on the tenant’s behalf.
Rent Reviews, Security and Key Money
Rent reviews must use a method the Act allows. These include a fixed percentage, an independent price index, a fixed amount or current market rent. A market review cannot stop your rent from falling. A specialist retail valuer decides market rent disputes.
The Act also bans key money, which is a payment for the right to take the lease. A landlord cannot charge you for preparing the lease. Your security deposit goes into an interest-bearing account, and the landlord must return it within 30 days of the lease ending if you have met your obligations.
Assignment and Renewal
A landlord can refuse to consent to an assignment only on limited grounds. These include an unsuitable use or doubts about the new tenant’s finances or experience. The landlord must also give you written notice about renewal before the lease ends. The timing rules differ depending on whether your lease has an option to renew.
Terms Your Lease Should Contain
A well-prepared lease should clearly set out:
- The names of the parties.
- The commencement date and term.
- Whether the lease is a retail lease or a non-retail commercial lease.
- Renewal options.
- The rent, its payment dates and the review method.
- The permitted use of the premises.
- Security requirements, such as a bond or bank guarantee.
- The insurances each party must hold.
- Outgoings and who pays them.
- The tenant’s and the landlord’s obligations.
- How GST applies.
- Whether you can assign or sublet.
- Make-good obligations at the end of the lease.
- Default provisions and the dispute process.
Make sure the lease matches your understanding and business needs. In particular, check that the permitted use covers everything your business does. Our guide to commercial lease review explains what a lawyer looks for. Our article on GST and property transactions covers the tax side.
Clarity, Certainty and Flexibility
Keep three principles in mind when you negotiate.
Clarity comes first. Tenants and landlords have different expectations, so spell out who is liable for what. A clear lease avoids disputes later.
Certainty matters next. Vague wording might look flexible, but it is a gamble. If a court has to interpret an unclear clause, your business pays the price.
Finally, consider flexibility. You may need the freedom to leave early, assign the lease or reduce your space. Flexibility can cost more, so negotiate it at the start and not when you need it.
What If You Have a Lease Dispute?
Most retail lease disputes must go to VSBC mediation before they reach the Victorian Civil and Administrative Tribunal (VCAT). Some matters, such as rent-only claims and injunctions, can go straight to VCAT. Non-retail disputes also go to VCAT, and they do not need a VSBC certificate. The VCAT page on retail and commercial leases explains the process.
Frequently Asked Questions
1. What is the difference between a retail lease and a commercial lease?
A retail lease covers premises used wholly or predominantly for retail sales, hire or retail services, and the Retail Leases Act 2003 (Vic) protects the tenant. A non-retail commercial lease, such as an office or warehouse, falls outside the Act, so the lease terms and general law decide your rights.
2. Does the Retail Leases Act apply to my lease?
It depends on how you use the premises, not on the label in the lease. The Act excludes some premises, such as those of listed companies and premises with high occupancy costs. Ask a lawyer to confirm before you sign.
3. How long must a retail lease be in Victoria?
A retail lease must run for at least five years, including options. A tenant can waive this by getting a free five-year waiver certificate from the Victorian Small Business Commission.
4. Can a landlord charge me land tax under a retail lease?
No. The Retail Leases Act prohibits a landlord from recovering land tax from a retail tenant. It also bans capital costs and depreciation. Other outgoings are recoverable only if the lease specifies them.
5. What should I do if I have a dispute with my landlord?
Review the lease and keep records of your communications. For a retail lease, you usually apply to the Victorian Small Business Commission for mediation before you go to VCAT. Seek legal advice early.
Allied Legal’s Melbourne lawyers help businesses negotiate, review and resolve commercial leases. We confirm whether your lease is a retail lease, check the disclosure statement and outgoings, and negotiate the terms that protect your business. Learn more about our commercial lease review service, or contact us on 03 8691 3111 / hello@alliedlegal.com.au.
This article is provided for general information only and does not constitute legal advice. You should obtain legal advice specific to your circumstances before acting on any information contained in this article.
