Commercial Leases (Qld)
Commercial leases are contracts been the owner of premises (the landlord) and a party (the tenant) who wants to use the premises for the purpose of running a business. Commercial leases may be retail leases or non-retail leases. This page deals with commercial leases in Queensland.
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 used by distributors and manufacturers which might be running a commercial enterprise, but do not sell directly to the end user. Similarly, premises used for parking or storage and offices are not retail leases.
Commercial leases are governed by the common law. They essentially are contracts between two parties who are free to reach any agreement they wish.
If a lease is for a retail shop, then the Retail Shop Leases Act 1994 applies.
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. There are, however, some situations where the Retail Shop Leases Act does not apply. These include leases for:
- service stations (which are franchises under the Trade Practices (Industry Code – Oilcode) Regulations (Cth)
- premises with a floor area of more than 1000m sq that are leased by a listed corporation or a listed corporation’s subsidiaries
- temporary businesses such as trade stalls
- premises leased from the South Bank Corporation on perpetual leases or leases for more than 100 years
- premises within a theme park or amusement park
What can and cannot be included in retail shop leases?
Some common clauses and clauses that are prohibited in retail shop leases are outlined below.
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 seven days before entering into the lease.
The landlord must give the tenant a copy of the proposed lease in writing at least seven days before the lease begins. 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.
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. A landlord can ask for a security deposit, but they must not ask for a non-refundable security payment.
Ratchet clauses are clauses in a lease that prevent the rent from being decreased. Ratchet clauses are also prohibited in retail shop leases.
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 it may be adjusted according to the Consumer Price Index (CPI) but the lease must specify which method is to be used.
At the end of the lease term, the parties will usually have to try and agree on a new rent amount themselves. 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’ in a lease agreement and renewals of leases in general.
An ‘option to renew’ a lease is a clause in a lease that entitles the tenant to renew the lease for a further term. If the lease doesn’t have an ‘option to renew’ clause or if the tenant has exercised all of their options to renew under the lease, then when the tenant seeks to renew the lease, they are in effect seeking a new lease.
If options to renew have been exhausted, and the lease is for less than one year, the landlord must advise the tenant at least three months before the end of the lease as to whether they intend to allow the tenant to renew and on what terms.
If the lease is for more than a year, the landlord must advise the tenant within six months of the end date 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 a minimum term for a retail lease.
Repairs and Maintenance
The Retail Shop Leases Act 1994 does not include provisions relating to repairs and maintenance. Parties must check the lease to establish their rights and obligations. However, unlike in some states, landlords in Queensland are permitted to set up a “sinking fund” for repairs and maintenance – that is, a fund to be used for these purposes in the future.
However, if such a fund is to be maintained, this must be specified in the lease.
Disputes about retail leases in Queensland are handled by the Queensland Civil and Administrative Tribunal (QCAT).
A matter will first be referred for mediation, and if it cannot be resolved that way, a hearing will be held by QCAT.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.