Commercial Leases in South Australia
Commercial leases are leases entered into with respect to commercial premises such as retail shops and office buildings. They are interests granted by one party (the owner) to another (the tenant). This page deals with commercial leases in South Australia.
The terms of commercial leases are generally regulated by the common law rather than by statute. 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.
Terms of commercial leases
If you are a landlord or a tenant under a commercial lease, then the lease itself will set out the term of the agreement and your rights and obligations in relation to the tenancy.
If the term of the lease is greater than three years and relates to Torrens title land (which will almost always be the case), then the lease must be registered with the NSW Office of Land and Property Information.
A number of covenants (agreements or undertakings) are implied in a commercial lease under both the common law and statute. However, these covenants will not apply if there is an inconsistent express covenant in the lease itself.
Implied covenants include:
- a covenant on the tenant to keep the premises in good condition
- a covenant to pay rent
- a covenant to allow the landlord to inspect the commercial premises, and
- covenants to re-enter the premises for breach or non-payment of rent.
Common clauses 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 common issues are outlined below.
You should make sure there is an option to renew the lease when it expires. If there is no option, then the landlord may not grant you another lease to continue operating in the premises.
If there is a mortgage over the commercial premises that are the subject of the lease, you should make sure that the mortgagee has consented for the property to be leased to you. If they have not consented, then they may be able to terminate the lease if the landlord fails to make their mortgage payments.
Review the rent clause in the lease. There may be a ‘ratchet clause’ which prevents the rent you pay from going down when there is a market rent review. Although such clauses are legal in non-retail commercial leases, they are not legal in retail leases.
Repairs and maintenance
Check the repairs and maintenance clause. This is the source of many disputes between landlord and tenant.
This clause will usually state what you will pay for, and what you will not pay for. However, things you will not pay for are not necessarily the obligation of the landlord, so make sure that the lease specifies what the landlord will pay for.
If there is no repairs and maintenance clause, you will be responsible for making small repairs (eg replacing light bulbs) and must keep the premises in good repair, but you will not be responsible for structural repairs.
This clause may allow the landlord to refurbish the premises whilst the lease is still on foot, disrupting your business.
If you assign your interest under the lease (or the landlord assigns their interest), not all rights and obligations will necessarily apply to the assignee. Furthermore, if you breach the terms of the lease and then assign your interest under the lease, you may still be sued for the breach.
A retail lease is a commercial lease for a retail shop lasting at least five years. A retail lease may be for a wide range of business from bakeries to hairdressers. Most retail leases are subject to the terms of the Retail Leases Act 1994, the purpose of which is to give retail tenants some extra protection. However, retail leases which last for 25 years or more, or relate to very large retail premises (ie greater than 1000m2), are not subject to these terms.
Some of the key protections given to retail tenants are as follows:
- Retail tenants are given a retail tenancy guide and a copy of the lease during negotiations. This is not required for non-retail commercial leases.
- Landlords have certain obligations to deal with any security bond or guarantee you pay appropriately. This helps protect your security bond.
- Ratchet clauses are not permitted in retail leases. This means your rent may go down when there is a market rent review.
- If the retail lease can be terminated on the demolition of the building, you must be given six months’ notice and must be compensated for any costs you were required to incur in fitting out the shop.
Resolving lease disputes
A party can request that the SA Small Business Commissioner mediate any dispute they have with a landlord or tenant over a retail or commercial lease. Alternatively, a party can request that the South Australian Civil and Administrative Tribunal (SACAT) deal with such a dispute.
A person may also apply to a court to settle any disputes they cannot settle privately with their landlord or tenant. However, many retail leases also specify their own dispute resolution mechanism.
If you require legal advice or representation in any legal matter, please contact Go To Court Lawyers.