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.
NSW retail leases have no cooling-off period. The Retail Leases Act 1994 doesn't give you one. Once it's signed, you're in it. Everything below is worth knowing before you sign, not after.
Does the Retail Leases Act even apply?
The answer changes everything else. The Act doesn't cover every shop, and the tests aren't the ones people expect.
- Is it a retail shop? The premises have to be used mainly for a listed retail business, or sit inside a retail shopping centre. Any business in a centre counts.
- 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 most leases under 6 months with no right to extend, and 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.
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.
If the statement never came, or came less than 7 days before the lease was entered into, 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's a narrow defence for a landlord whose statement was given but was incomplete or misleading. It has to show it acted honestly and reasonably, ought reasonably to be excused, and that you're no worse off. It doesn't help a landlord who gave no statement, or gave it late. Six months goes quickly.
You owe one back
Within 7 days of getting the landlord's statement, unless the landlord agrees a longer period, 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.
YOUR LEASE, THE LAW
The landlord's lawyer is not compulsory
Would you push back, or just sign to keep the deal?
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A landlord tells a retail shop tenant in New South Wales, you must use my lawyer. Does the tenant have to?
No. A retail shop tenant must not be compelled to use a lawyer the landlord nominates. The Act says who that covers.
That means a lawyer or licensed conveyancer the landlord nominates, even before you sign. So what if a tenant was forced?
As tenant, if forced, the landlord is liable to pay you the fees you paid that lawyer or conveyancer for those services.
So a lawyer the landlord nominates isn't compulsory. Not every lease is covered, so it's worth checking yours before you sign.
We can review your lease. theleasinglawyer.com.au
Changes to the Act are proposed and not yet in force. What's changing →
General information, not legal advice.
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. The main ones:
- 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. The one exception is a reasonable charge for changes you ask for later in the process, and the landlord has to show you the bill first.
- 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 costs aren't outgoings. The lease can still ask you for a separate marketing contribution, and if it does, the landlord has to give you a marketing plan at least a month before each of its accounting years starts.
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.
YOUR LEASE, THE LAW
Shopping centre leases and missed sales targets
Your NSW shopping centre lease says it can end if your sales miss a target. Can it?
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Your New South Wales shopping centre lease says it can end if your sales miss a target. Can it?
No. A shopping centre lease must not contain a clause ending it because specified sales or turnover figures were missed.
It's a shopping centre rule. Your shop must be in a retail shopping centre, under a lease the Act covers.
The rule only bars a missed sales target as the reason. Other grounds for ending a shopping centre lease aren't affected.
So if a shopping centre lease you're offered has a clause like that, have it reviewed before you sign.
Get your lease reviewed. theleasinglawyer.com.au
Changes to the Act are proposed and not yet in force. What's changing →
General information, not legal advice.
YOUR LEASE, THE LAW
Your turnover figures stay with the landlord
Do you know who your landlord may pass your sales figures to?
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If your shopping centre lease makes you report your sales figures to the landlord, who else is allowed to see them?
In a New South Wales shopping centre, a landlord must not pass on turnover figures you give it under the lease. With some exceptions.
It can share them with your consent, in centre totals that don't show any one shop, or for a court, or for a mediation or valuation for the purposes of the Act or the lease.
Or to its professional advisers, or where an Act requires it. It can also, in good faith, pass them on to a lender to get finance, or to a possible buyer. Beyond that?
Outside those exceptions, a landlord that passes your figures on commits an offence, and can be fined.
This rule is for shops in retail shopping centres that the Act covers. Elsewhere, what your lease says about your figures matters more.
We can review your lease. theleasinglawyer.com.au
Changes to the Act are proposed and not yet in force. What's changing →
General information, not legal advice.
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 within 12 months of the lease being entered into, or of the last change. That's the earliest of you taking possession, paying rent or both sides signing, so it can be earlier than the start date in the lease. 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.
YOUR LEASE, THE LAW
Rent review limits: section 18
Your lease is up for a market rent review, and a clause says the rent can never go down. In NSW, is that allowed?
Read the transcript
Your New South Wales shop lease is up for a market rent review. But a clause says the rent can never go down. Allowed?
Section eighteen: if the lease reviews rent in a way that could lower it, like to market, a clause stopping or capping the fall is void.
Void means that part drops out. The rest of the lease stands.
Also void: one side choosing the review method each time, or a clause taking whichever method gives the higher rent.
And rent can't change within twelve months of the lease being entered into or the last change, unless it's a fixed amount or percentage.
The lesson. Fixed increases are lawful. But a review to market must leave the rent free to fall as well as rise.
Get your lease reviewed. theleasinglawyer.com.au
Changes to the Act are proposed and not yet in force. What's changing →
General information, not legal advice.
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 counting any options, the landlord must lodge it for registration within 3 months of getting it back signed by the tenant. A 2 year lease with a 2 year option is caught. Landlords, both of these sit with you.
The commercial terms the Act mostly leaves to you
The Act protects you on the points above, and sets some further rules on security and on assigning the lease. It says nothing about whether the deal is a good one. Beyond the Act's rules, the rest is down to negotiation: 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.
LEASE ON TRIAL
Gnych v Polish Club: no approval, but still a lease
Two tenants ran a restaurant inside a NSW licensed club and traded for over a year.
Read the transcript
Two tenants ran a New South Wales club's restaurant. They opened and traded for over a year. Then they were locked out.
They moved in on terms they had proposed to the club. No lease was signed, but they had one all the same.
Liquor law required the regulator's approval for the lease. The club never sought it, then said that meant there was no lease.
The trial judge backed the tenants. The Court of Appeal sided with the club. Then the High Court heard it.
All five judges agreed on the result. The club's breach did not make the lease void or unenforceable.
Our tip. Leasing space in a pub or club? Liquor law limits what can be leased, so check before you sign.
Get your lease reviewed. theleasinglawyer.com.au
Dramatised from the published reasons of the High Court of Australia. General information, not legal advice.
If it goes wrong later
Most retail lease disputes have to go through mediation before NCAT or a court will hear them. NCAT hears retail tenancy claims up to $750,000. Mediation is usually quicker and cheaper than a hearing. Still, fixing a clause before you sign costs far less than arguing about it afterwards.
The short version
A NSW retail lease comes with real protections: disclosure deadlines that run both ways, charges the Act makes void, a cap on the land tax you can be charged and limits on rent reviews. The rest of the deal is down to negotiation, and in NSW there's no cooling-off to fall back on. So have the lease reviewed before you sign.
Read next: retail lease rights in NSW · personal guarantees · what we check before a tenant signs