Commercial leases in Queensland are essentially a contract been the owner of the premises (the landlord) and a person (the tenant) who wants to use the premises for the purpose of running a business.
Types of Commercial leases
Commercial leases in Queensland can be divided into two categories: retail leases and non-retail leases. Retail leases are essentially leases which involve the sale of goods and services to the end consumer, for example a hairdresser or a grocery store. Non-retail leases include warehouses, distributors and manufacturers which might be running a commercial enterprise, but are not retail as they do not sell directly to the end consumer. Similarly premises used for parking or storage are not consider retail leases, nor are offices generally.
Commercial Leases generally
General commercial leases are governed by the common law. They essentially are contracts between two parties who are free to reach any agreement they wish. There is, however, some important legislation which governs these contracts, for example the Commonwealth Australian Competition and Consumer Law Act 2012 which regulates misleading and deceptive conduct and other prohibited trade practices, and the Part 8 of the Queensland Property Law Act 1974.
If a lease is for a retail shop, then the Retail Shop Leases Act 1994 applies to the lease.The Retail Shop Leases Act 1994 cannot be contracted out of, and if there is an inconsistency with the terms of the lease and the Act, then the provisions of the Act shall prevail. The Act essentially forms part of the contract between the landlord and the tenant. The Retail Shop Leases Act however will not apply, even if the lease relates to a retail business, if:
- The business is a service station (which is considered a franchise under the Trade Practices (Industry Code – Oilcode) Regulations (Cth)
- The Premises have a floor area of more than 1000m sq and are leased by a listed corporation or a listed corporation’s subsidiaries
- The lease relate to temporary businesses such as trade stalls
- The premises are leased from the South Bank Corporation with perpetual leases or leases for more than 100 years
- The premises are within a theme park or amusement park
Things to remember with retail shop leases
- Disclosure statements and proposed leases: The landlord to a retail lease must provide the tenant with a disclosure statement which outlines important things like the estimate of outgoings (expenses). This disclosure statement must be provided to the tenant at least 7 days before entering into the lease. Likewise, the landlord must give the tenant a copy of the proposed lease in writing at least seven days before entering into the lease.The landlord must provide the tenant with a certified copy of the signed lease within 30 days of the lease being signed.Failure to do so attracts a penalty (fine).
- Key money and ratchet clauses: Key money and ratchet clauses are both prohibited by the Act. Key Money is money (or another benefit) that a landlord asks for in return for the grant, assignment or renewal of a lease. This does not mean that landlord cannot recover the reasonable legal costs from a tenant for these things, like legal costs for preparing a new lease. Likewise a landlord can ask for a security deposit, but not a non-refundable security deposit. Ratchet clauses are clauses in the lease which prevent the rent going down.Clauses of this nature are also prohibited.
- Rent clauses and reviews: Tenants and landlords should also be aware of how the rent is to change during the term of the lease. The rent may go up by a fixed amount or adjusted according to the Consumer Price Index (CPI) but the lease must specify which method. At the end of the lease term, the parties will usually have to try and agree on a new rent themselves; if the lease is a retail lease, a Specialist Retail Valuer may need to determine the market rent of the premises. Parties should be aware that valuers are not cheap and it can cost thousands of dollars to determine the rent through a valuer. The valuer’s rental figure is normally binding on the parties.
- Options and renewals: There is a difference between an option to renew and renewals of leases in general. An option to renew the lease is a specific clause in the lease which entitles the tenant to renew the lease for a further term. If the tenant doesn’t have any option, or has exercised all of their options under the lease, then a general renewal applies and they are seeking a new lease. In this case, if the lease is for less than one year, the landlord must advise the tenant at least three months before the end of the lease whether the landlord intends to allow the tenant to renew and on what terms.If the lease is for over a year, the landlord must advise the tenant within six months of the end of the lease as to whether or not they intend to renew the lease. The landlord is free to set any rental amount they wish in these circumstances. Unlike other states, Queensland does not have any minimum term for a lease to be considered a retail lease.
- Repairs and Maintenance: It is important to remember that the Act does not include provisions relating to repairs and maintenance; tenants and landlords should check the lease. However, unlike some states, the landlord is permitted to set up a “sinking fund” for repairs and maintenance, that is, a future fund for these purposes. However, such a fund must be included in the lease.
Dispute regarding retail leases in Queensland are handled by the Queensland Civil and Administrative Tribunal (QCAT). The matter will first be referred for mediation, and if this is not successful, the matter will be heard at a hearing at QCAT.