Retail Leases 101 – Things you need to know

In Queensland, retail leases are subject to special rules and protections aimed at ensuring fairness between landlords and tenants. Understanding these rules is crucial for both parties to avoid disputes and comply with legal obligations.

Key Legal Protections in Retail Leases

1. Legal Fees and Lease Preparation
   Landlords cannot charge tenants for the legal fees associated with preparing the lease or obtaining a mortgagee’s consent. However, if the tenant backs out after giving initial approval, the landlord may recover these costs.

2. Mandatory Pre-Lease Disclosure
   Before entering into a lease, the landlord must provide a disclosure statement to the tenant, outlining key terms such as rent, outgoings, and other obligations. This statement must be provided at least 7 days before the lease is signed. If the disclosure is incomplete or misleading, the tenant may be entitled to terminate the lease or claim compensation.

3. Legal and Financial Advice for Tenants
   Tenants are required to obtain legal and financial advice before signing a retail lease. Certificates confirming this advice must be provided to the landlord, ensuring that tenants fully understand their obligations.

4. Rent Reviews and Escalation
   Retail leases in Queensland must follow specific rules regarding rent reviews:

   • Rent cannot be escalated based on whichever method results in a higher amount.
   • Market rent reviews must be conducted by a Specialist Retail Valuer using statutory guidelines.
   • Any method that prevents a rent decrease is deemed void.

5. Tenant Protections for Exercising Options
   Tenants who exercise a renewal option in their lease gain certain protections, including the right to request a market rent review six months before the option date. Tenants can then decide whether to accept the new rent, negotiate different terms, or choose not to renew.

6. Assignment of Lease and Liability Release
   When a retail lease is assigned to a new tenant, the assignor (the original tenant) and any personal guarantors are generally released from liability, provided they comply with the disclosure requirements. This means the assignor won’t be held responsible if the new tenant defaults on the lease.

7. Compensation for Business Disturbances
   Tenants may be entitled to compensation from the landlord if the business is disturbed due to major issues such as demolition, relocation, or disruption caused by landlord actions.

8. Make Good Obligations
   At the end of a lease, tenants must fulfill make good obligations—restoring the premises to its original condition. However, in retail leases, these obligations must be clearly outlined in the lease, detailing the specific work required and the timeline for completion.

Disclosure Requirements in Retail Leases

Sub-lessees, franchisees, and assignees are entitled to pre-lease disclosure, just like tenants. Landlords must also provide disclosure to a sitting tenant exercising a renewal option. When a business is sold, the current lease must be disclosed to the buyer (as the assignee) at least 7 days before entering the business sale contract.

If the landlord fails to provide accurate disclosure, or if the disclosure is given late, the tenant may be entitled to reasonable compensation or the ability to terminate the lease. This requirement ensures that tenants are fully informed before committing to the lease.

Rent Reviews: Important Considerations

Rent reviews in retail leases follow these key rules:

• No double escalation: The lease cannot allow rent to be reviewed under multiple methods where the higher amount applies.
• Market rent reviews must be conducted by a Specialist Retail Valuer using statutory methods.
• Any clause preventing rent from decreasing during a review is invalid.

Tenants can request a market rent review six months before their lease renewal option date and have 21 days after receiving the valuation to decide whether to renew or negotiate further.

Options: Exercising Renewal Rights

When a tenant exercises an option to renew the lease, they may face uncertainty over future rent levels, particularly if a market rent review is involved. However, tenants can request that the landlord determine the market rent six months before the option exercise date.

Once the written market rent determination is received, tenants have 21 days to either:

• Accept the market rent as determined
• Negotiate a different rent for the renewal period
• Choose not to renew the lease

This process provides tenants with a clear understanding of their options and the likely costs before making a decision about renewing the lease.

Assignors and Release from Liability

In a typical commercial lease, the assignor (the original tenant) may remain liable to the landlord if the new tenant defaults. However, Queensland’s retail leasing laws offer assignors protection, provided they fulfill their disclosure obligations to the assignee. Once these requirements are met, the assignor and their guarantors are released from further liability under the lease.

Make Good Obligations in Retail Leases

Retail leases generally contain make good clauses, requiring tenants to return the premises to its original condition at the end of the lease. To be enforceable, the lease must clearly specify the nature, extent, and timing of the work required. If the lease lacks this detail, tenants may not be required to perform make good obligations.

FAQs: Key Questions About Retail Leases

1. Can a landlord charge tenants for legal fees in preparing the lease?
No, landlords cannot charge tenants for lease preparation legal fees. However, if a tenant refuses to sign after giving approval, the landlord may recover those costs.

2. What happens if the pre-lease disclosure is incomplete or misleading?
Tenants may terminate the lease or claim compensation if the pre-lease disclosure is incomplete, misleading, or provided late.

3. Can tenants negotiate the rent after a market rent review?
Yes, tenants have the right to negotiate or reject the market rent determined during a rent review. They can either accept the rent, negotiate different terms, or decide not to renew.

4. Are assignors and guarantors automatically released after a lease is assigned?
In retail leases, assignors and their guarantors are generally released from liability once the proper disclosure has been provided to the assignee.

Retail leases in Queensland offer significant protections and obligations for both landlords and tenants. Understanding these rules is essential for avoiding disputes and ensuring a smooth leasing process. Whether you are entering a lease, renewing it, or assigning it, it’s important to be aware of the legal requirements and protections available under Queensland law.