28 Nov DO I NEED A COMMERCIAL OR RETAIL LEASE?
What’s The Difference? It is vital for businesses to be aware of the important differences between a retail lease and a commercial lease. They each cover different sets of rights and impose different obligations. If you’re a landlord or tenant and unsure of which lease to put in place, you should obtain advice before entering into any negotiations or signing a lease.
A commercial lease is an agreement between an owner and business entity to lease a commercial property. That is, commercial leases usually apply to a premises that will be used as a warehouse, industrial site or office – a premises where there is not going to be buying/selling direct to the general public. The terms of a commercial lease can vary greatly from lease to lease and document the terms negotiated privately between the parties.
In NSW, a retail lease is used where the primary purpose or use of the premises is for a retail purpose as prescribed under the Retail Leases Act 1994. Schedule 1 to the Act sets out the types of businesses that are considered ‘Retail Shop Businesses’ (usually involving sale of goods and/or some types of services to the general public). A retail lease will also be used for a business that is located within a retail shopping centre, regardless of its type.
The distinction between a commercial or retail lease can be unclear in relation to some types of service businesses. The location of the business will usually become the relevant or deciding factor in these instances.
The parties’ respective obligations and rights will vary depending on the type of lease entered into. Retail Leases in NSW are governed by the Retail Leases Act 1994. The Act imposes specific obligations on the landlord and tenant that cannot be contracted out of, unlike commercial leases where the parties negotiate privately. Essentially, the extent of a tenant’s liability in a commercial lease can be flexible and is dictated by the negotiations between the parties prior to entering into the lease, whereas in a retail lease, the Act will prescribe most of the leasing provisions and rights of the parties.
Significant differences between a commercial lease and retail lease are:
A retail Landlord is required to provide disclosure of certain terms and information prior to entering into a retail lease with a tenant. Failure to disclose or disclosing misleading material can give rise to a tenant’s right to terminate the lease;
A Landlord may not charge the tenant for the Landlord’s lease preparation or mortgagee consent fees relating to a retail Lease but may negotiate payment of those costs in relation to a commercial lease;
Security deposits are held by the NSW Office of the Small Business Commissioner in the case of retail leases. In commercial leasing, security deposits may be held by the Lessor or the Lessor’s agent.
One of our lawyers can assist you with all aspects of both retail and commercial leasing. Please contact us if you have any enquiries.
Kim Harris, Solicitor, has experience with a range of clients, including individuals, small businesses, government bodies and large corporations.
Call | 02 9976 0231
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Legislation | Retail Leases Act 1994