There are two main types of leases available for businesses looking to rent premises: retail leases and commercial leases. Often, the differences between the two can cause confusion. While these leases have some commonalities, they also have unique characteristics that set them apart. Understanding the distinctions between the two is important for landlords and tenants to make informed decisions. This blog post will examine the key differences between retail leases and commercial leases.
What is a Lease?
A lease is a legally binding agreement made between two or more parties. The initial party, termed the Lessor or Landlord, is the property owner who leases it to the second party, referred to as the Lessee or Tenant.
What is a Commercial Lease?
Businesses often use a commercial lease for large-scale operations, such as utilizing premises for warehouses, industrial areas, or office spaces.
While commercial leases act under Property and Conveyancing Laws, they do not fall under any specific legal regulations and can differ significantly based on the premises, landlord, or managing agent. As a result, these leases may be skewed toward the landlord, making it crucial for you or your solicitor to negotiate favourable terms to minimize your liabilities under the lease.
Key Features of a Commercial Lease
Typically, a commercial lease will cover aspects like:
- The method and schedule for rent payment
- The process and timing of rental reviews
- Property maintenance and repair responsibilities
- Procedures for handling breaches and lease terminations
What is a Retail Lease?
A retail lease is generally provided for premises primarily intended for selling and providing goods and/or services. They are usually used for clusters of shops, for example, a shopping centre.
Tenants under retail leases receive added protection under different state legislations. In Victoria, retail leases are organized and governed by the Retail Leases Act (Vic) 2003.
The Importance of the Retail Leases Act
Compared to a commercial lease, the Retail Leases Act (Vic) 2003 levels the playing field between landlords and tenants through the following means:
- Mandatory disclosure requirements: The Act mandates landlords to provide tenants with a Disclosure Statement and ensure continuous disclosure concerning the leased premises. This statement confirms crucial details for the tenant, such as the rented premises, included amenities, incidentals, and an estimate of associated outgoings. This provision adds certainty and safeguards for the tenant.
- Restrictions on expense claims: The Act prohibits landlords from charging tenants for certain expenses, including land tax and any capital improvements or costs incurred by the landlord; and
- Supremacy over inconsistent leases: The Act protects tenants by preventing landlords from bypassing its provisions and neglecting essential requirements. If a lease fails to address an issue or contradicts the Act, the Act takes precedence, with any conflicting lease clause replaced by the relevant section of the Act.
- Businesses use commercial leases for large scale operations such as premises used for warehouse, industrial or office spaces.
- Businesses use retail leases for premises primarily intended for selling and providing goods and/or services that are usually located in clusters of shops.
- The Retail Leases Act (Vic) 2003 governs retail leases.