By James Lainas & Jennifer Huppert
In Victoria, retail leases are governed by the Retail Leases Act 2003 (Vic) (Act). If your lease is deemed to be a retail lease, the Act imposes extra obligations on landlords and affords extra protections to tenants. Those obligations and protections override anything the parties may otherwise have agreed, and can have a significant financial impact upon the parties.
As such, it is important to know whether the Act will apply to your lease, whether you are a landlord or a tenant.
What is a retail lease?
A retail lease must be for retail premises, and have a term of more than 1 year, to fall within the operation of the Act.
Retail premises are premises that are used predominantly or entirely for the retail sale or hire of goods or services.
What isn’t a retail lease?
The Act also does not apply to leases of retail premises if:
- the occupancy costs are more than $1m per year;
- the tenant is a listed corporation or a subsidiary of a listed corporation (including corporations or a subsidiary whose securities are listed on a stock exchange outside Australia).
The Act also gives the relevant Minister the power to determine that the Act does not apply to certain leases, premises, tenants or businesses. Under that power Ministerial determinations have been made which exclude the Act from applying, including in the following situations:
- Premises above the third storey: If retail premises are used for the provision of services, rather than goods, and they are not located on any one of the first three storeys of the building, then the Act won’t apply.
- 15 year leases: If a lease is for a term of 15 years or more, and
- the tenant is obliged to carry out substantial work on the Premises (structure or fixtures; plant and equipment; or appliances, fittings or fixtures relating to gas, electricity, water, drainage or other services);
- the tenant is obliged to pay any substantial amount for such works; or
- the tenant is disentitled from removing any of the things after the lease ends,
the Act won’t apply.
- Community and charitable purposes: If retail premises are used for a purpose which has an apparent community benefit or service, the rent payable under the lease is no greater than $10,000 per annum, and the lease was entered into after 1 January 2015, the Act won’t apply.
Premises used for public or municipal, charitable or religious purposes have an apparent community benefit or service.
- Local council premises used for community and charitable purposes: If retail premises are leased by a local council, used for a purpose which has an apparent community benefit or service, and the lease was entered into before 1 January 2015, the Act won’t apply.
- Market land: If retail premises are located entirely within the Melbourne Markets, the Act won’t apply.
Please get in touch with us if you would like advice as to whether your lease (or your proposed lease) is subject to the Act, and what this will mean.