Retail lease review in NSW: what to check before you sign

Most retail tenants get the lease a few days before they want to open. The agent says it's standard. The fit-out is booked. Nobody wants to be the one holding things up.

That's exactly when the expensive mistakes get made, because in NSW there's no going back afterwards.

1. Does the Retail Leases Act even apply?

Start here, because the answer changes everything else. The Act doesn't cover every shop, and the tests aren't the ones people expect.

• Floor area. A shop with a lettable area of 1,000 square metres or more is outside the Act.
• Total term. A lease of 25 years or more, counting every option to renew, is outside the Act.
• No rent threshold. You may have read that leases above a certain rent are excluded. That's not the law in NSW.

There are other exclusions too, including a list of uses set out in a schedule to the Act. If you're anywhere near the 1,000 square metre line, have the area checked against the lease plan before relying on anything else here.

2. The disclosure statement, and its deadline

The landlord has to give you a disclosure statement in the prescribed form at least 7 days before the lease is entered into. It's where the outgoings, the fit-out position and the centre information are meant to be spelled out.

A review checks three things: that it arrived in time, that it's complete, and that it matches the lease. If the statement never came, or it was incomplete, or it was materially false or misleading, you can end the lease by written notice within 6 months of entering into it and claim compensation, including what you spent on fit-out. There are limits where the landlord acted honestly and reasonably, and 6 months goes quickly.

You owe one back

Within 7 days of getting the landlord's statement, you have to give the landlord a completed lessee's disclosure statement in the prescribed form. It carries a penalty, and it gets forgotten constantly because everyone is focused on the lease itself.

3. Charges the Act knocks out

The Act doesn't set your rent. What it does is make some ways of charging you void, whatever the lease says. A review looks for each of them:

• Capital costs, depreciation, and interest on the landlord's borrowings. Void. You can't be made to pay them.
• Key money and the landlord's lease preparation costs. Prohibited, and you can recover them if you've paid.
• Undisclosed contributions. If the lease makes you pay for finishes, fixtures, fittings, equipment or services that weren't in the disclosure statement, that clause is void.
• Outgoings not properly set out. You only pay outgoings the lease specifies, with how they're worked out, shared and recovered. Advertising and promotion don't count as outgoings.

Land tax: capped, not banned

This one gets misread in both directions. Land tax can be passed to a retail tenant in NSW, but your share is capped at what the tax would be if that land were the only land the landlord owned, held outside a special trust and not by a non-concessional company. That's usually a much smaller number than the landlord's actual bill, so check how the lease works it out.

4. The rent review clause

Rent review clauses are where a lot of the long-term money sits. Three rules matter:

• The 12 month rule. Base rent can't change less than 12 months after the lease starts or after the last change. Fixed increases work differently, so check which kind you have.
• No choosing the higher method. A clause that lets one party pick which review method applies, or picks whichever gives the higher rent, is void. The "greater of CPI or market" formula you see in commercial leases doesn't survive in a retail one.
• No ratchets. If a review could bring the rent down, such as a review to current market rent, a clause stopping it from falling, or limiting how far it falls, is void. People often think ratchets are only banned in Victoria. They're void in NSW too.

5. Fit-out and registration

If you're paying towards works the landlord carries out for your fit-out, the maximum amount or the formula has to be agreed in writing before the lease is entered into. And if the lease runs for more than 3 years, the landlord must lodge it for registration within 3 months. Landlords, both of these sit with you.

6. The commercial terms the Act doesn't touch

The Act protects you on the points above. It says nothing about whether the deal is a good one. A review also covers the things you have to negotiate yourself: the personal guarantee, the bank guarantee or bond, the make good clause, your options to renew, and what happens if you need to leave early. That's usually where the real money is.

If it goes wrong later

Most retail lease disputes can't go to court until mediation has been tried, and retail tenancy claims are heard by NCAT. Mediation settles most of them early and cheaply. Still, fixing a clause before you sign costs far less than arguing about it afterwards.

The short version

Check the Act applies. Check disclosure arrived on time and matches the lease, and send yours back within 7 days. Look for the charges the Act makes void, check how land tax is worked out, and read the rent review clause closely. Then negotiate the commercial terms. Do all of it before you sign, because in NSW there's no cooling-off to fall back on.

Read next: retail lease rights in NSW · personal guarantees · what we check before a tenant signs