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Commercial Leases in South Australia

Commercial leases in South Australia are leases entered into with respect to commercial premises such as retail shops and office buildings.  They are interests granted by one party, the landlord, to another, the tenant.  Across the Australian States and Territories, the terms of commercial leases are generally not regulated by statute but by the common law.  This means that the parties to a commercial lease have a lot of scope to decide the terms of the lease themselves.

In South Australia, some leases relating to retail shops are also subject to the rules contained in the Retail and Commercial Leases Act 1995.  Additional rules affecting commercial leases are contained in the Real Property Act 1886.

Be aware of a “ratchet clause” that stops any rent decrease on market review.

Retail shop leases

A “retail shop lease” is a lease which relates to a retail shop or a retail shop together with an adjacent dwelling. A retail shop can be inside or outside of a retail shopping centre. If you are a tenant under a retail shop lease, your annual rent is less than $400,000 and the duration of the lease is greater than a month, then your lease will be subject to the rules in the Retail and Commercial Leases Act 1995.

This means you are entitled to certain additional protections and restrictions on what can be included in the lease. Any inconsistent terms in the lease itself are overridden by these rules. Some examples of these rules include:

  • You are entitled to receive a copy of the lease at the negotiation stage, together with a disclosure statement setting out the key terms of the lease and matters that are relevant to operating a retail business. For example, if the retail shop is in a retail shopping centre, the disclosure statement will set out the number of parking bays available to customers and the tenant mix of the shopping centre;
  • Retail shop leases must have a minimum duration of 5 years (including rights of renewal);
  • A premium cannot be charged by the landlord for granting the lease;
  • For retail shops located in retail shopping centres, the existing tenant has a preferential right of renewal if the landlord chooses to re-let the premises;
  • A tenant cannot be required to pay the value of any land tax to the landlord;
  • “Ratchet clauses”, which are clauses preventing a decrease in the rent, are not legal in retail shop leases; and
  • Certain rules only apply to retail shop leases in retail shopping centres. For example, a retail shop lease for a retail shop in a retail shopping centre cannot require the tenant to advertise or promote their business.

Other terms of commercial leases in South Australia

In addition to the rules discussed above, there are certain covenants which are implied under the Real Property Act 1886 to form a part of every commercial lease. These include covenants on the tenant to pay rent as required, and to keep the premises in good tenantable repair, with reasonable wear and tear excepted.Some covenants are also implied under common law; for example, covenants to allow the landlord to inspect the premises. These covenants will not apply if there is an inconsistent express covenant in the lease itself.

Subject to the rules about retail shop leases set above, the landlord and tenant generally have the freedom to negotiate whatever terms they want to have in their commercial lease.

Registration of leases

Leases which relate to Torrens title land and are not registered with the South Australian Land Titles Office are not indefeasible. This means that another person could be granted a right in respect of the land the subject of your commercial lease, and if that right is registered, it will take precedence over your rights under the commercial lease. However, if the term of the lease is less than one year then it does not need to be registered to be indefeasible.

“Pitfalls” in commercial leases

There are a number of key clauses and issues you should watch out for if you are a tenant entering into a commercial lease.Some examples include:

  • Whether there is an option to renew when the lease expires. If there is not, the landlord might not grant you another lease in respect of the premises.If the lease is a retail shop lease in a retail shopping centre, you will still have a preferential right to renew the lease.
  • Make sure any mortgagee of the commercial premises has consented to the lease. If they have not consented, then they might terminate the lease if the landlord does not make their mortgage payments.
  • Check the rent clause; a “ratchet clause” may prevent the rent decreasing when there is a market rent review. Such clauses are not legal in retail shop leases.
  • Check the repairs and maintenance clause.It will state what you are obliged to pay for.If there is no repairs and maintenance clause, you will be responsible for keeping the premises in good tenantable repair, with reasonable wear and tear excepted.
  • Check if there is a refurbishment clause. Refurbishment clauses allow the landlord to refurbish the premises. This may cause disruption to your business.

Resolving lease disputes

In relation to retail shop leases, you can request that the Small Business Commissioner of South Australia mediate any dispute you have with your landlord or tenant.Alternatively, the Magistrates Court can hear disputes in relation to retail shop leases; however, if the monetary claim involved exceeds $100,000, then the Magistrates Court will refer the dispute to the District Court. For other commercial leases, you must apply to the court to have the dispute resolved.

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