The special rules that apply to Retail Leases include the following:-
- Landlords cannot charge tenants for lease preparation legal fees or the cost of obtaining its mortgagee’s consent to the lease. Legal fees for lease preparation can, however, be recovered if after giving its go-ahead, the tenant declines to sign the lease;
- Pre-lease disclosure is mandatory;
- Tenants are required to obtain legal and financial advice before entering into the lease and must obtain certificates to that effect;
- Rent reviews and escalation are regulated;
- Tenants gain protection in relation to the exercise of options;
- Assignors and their personal guarantors can be released from future liability;
- Compensation is payable by the lessor in the event of a business disturbance, demolition or relocation;
- Make good obligations at the end of a tenancy are clarified;
- Disputes can be adjudicated by the Queensland Civil and Administrative Tribunal (QCAT).
Sub-lessees, franchisees and assignees are also entitled to pre-lease disclosure from the landlord. Likewise, a sitting tenant who exercises a renewal option. When a retail business is sold, its owner must give the buyer – in its capacity as assignee of the lease – and “Assignor Disclosure Statement” and a copy of the current lease before entering into the business sale contract.
Their disclosure is required to be given to the incoming tenant at least 7 days before entering into the lease. This period can be shortened by the incoming tenant so as to permit the disclosure to be given immediately prior to its entry into of the lease. But if given after that time or if it is materially incomplete or misleading, the landlord may be required to pay the tenant “reasonable compensation” and the tenant may be able to terminate the lease.
The following rules apply to rent reviews in retail leases:-
- Rent cannot be escalated according to whichever of two or more methods would result in a higher rent;
- Rent reviews to “market” must be conducted by a Specialist Retail Valuer according to a statutory methodology;
- A method of review that prevents any rent decrease is void.
When a tenant exercises an option – unless rent has been agreed in advance – the tenant takes the risk as to level of rent that will be determined in the “market” review process.
In a retail lease, the tenant can – six months prior to the option exercise date – request the lessor to determine the “market rent”. Regardless of the period specified in the lease, the tenant is then entitled to exercise its renewal within 21 days of its receipt of the written market rent determination. The tenant can from then on-site to accept the rent as determined negotiated different rent for the renewal period or decide not to renew.
Release of assignor
On assignment of a lease, the assignor generally retains liability to the landlord should the assignee default – at least up until the end of the original lease term. In the retail context, provided an assignor complies with its disclosure obligation to the assignee of the lease, the assignor and its personal guarantors are immediately released from this potential liability.
All leases contain make good provisions i.e. an obligation on the tenant to restore the premises to their pre-lease condition. Such a provision in the retail leases however avoids unless particulars of the nature and extent and timing of the work required to be done are clearly set out.