Retail Shop Leases in Queensland
Before you enter into a retail shop lease as a tenant in Queensland, it is crucial that you are well aware of your rights and protections under the Retail Shop Leases Act 1994 (Qld) (“the Act”).
In Queensland, all retail shop leases are governed by the Act which provides tenants statutory protections that the landlord must observe. When reviewing a retail shop lease, you must be aware of any lease terms that are inconsistent with the minimum protections guaranteed by the Act.
We have listed 8 different ways the Act protects retail tenants in Queensland.
Outgoings refer to the landlord’s expenses for the operation, maintenance and repair of the centre or building. The Act specifically excludes certain expenses to be considered as outgoings including but not limited to land tax and payment of an excess to an insurance claim 1. The landlord must provide an annual outgoings estimate or audited annual statement to the tenant before charging outgoings 2. If the landlord fails to do so, the tenant can withhold payments of outgoings until the estimate or audited statement is provided 3.
If promotion and marketing costs are payable by the tenant, the landlord must give the tenant a marketing plan that provides details of the lessor’s proposed spending on promotion and advertising during that accounting period 4. This ensures that the tenant will be informed on the upcoming advertisement costs and be able to plan their finance early.
2. Landlord’s disclosure obligations
Landlords are required to provide a disclosure statement to the prospective tenant prior to the tenant signing the lease 5. The Disclosure statement should include key lease terms, details of outgoings, premises details, other relevant costs and centre/building details. Prospective tenant should take the Lessor’s Disclosure Statement into consideration when deciding whether they will enter into the lease.
If the landlord fails to provide the disclosure statement and the draft lease at least seven days before the lease is entered into or if the statement is defective, the tenant may terminate the lease within 6 months after the lease is entered into 6. In cases where the landlord’s disclosure statement is defective or misleading, the tenant can seek reasonable compensation for any damages suffered if the tenant is induced to enter into the lease on the basis of any false or misleading statement or misrepresentation made by the landlord. 7
3. Rent reviews
The Act provides several restrictions on rent reviews which are in favour of the tenant:
- The rent cannot be reviewed more than once in each year of the lease (except the first year); 8
- Only one rent review method can be used at each review; 9
- Rent cannot be calculated on the better of two rent review methods (e.g. the higher of CPI review or fixed 4% review); 10
- ratchet rent provision is prohibited meaning that rent payable can decrease at a market review. 11
In situations where the parties have a dispute with current market rent, an independent specialist retail valuer must be appointed to determine the market rent, at the equal cost of the parties. 12
4. Turnover Rent
Turnover rent refers to the percentage of business turnover that a tenant pays to the landlord in addition to the base rent. If the landlord requires turnover rent to be paid then the calculation of the turnover rent must be specified in the lease. 13 This protects the tenant by ensuring that the tenant is informed of their obligation to pay turnover rent. It is often recommended that tenants should seek professional financial advice in this regard. The landlord is also obliged to keep the tenant’s turnover information confidential and must not disclosure such information to a third party without the tenant’s consent. 14
5. Legal Costs
In standard commercial lease, the landlord will often insist that the tenant pays the landlord’s legal costs in preparing the lease and other associated costs. In comparison, the tenant of a Queensland retail shop lease is not liable to pay any of the landlords’ legal costs in preparing the lease or mortgagee’s consent costs. 15 However, if the landlord has prepared a final lease and the tenant refuse to sign, the landlord can seek reasonable costs for the preparation of the final lease from the tenant. 16
6. Payment of key money and amount of goodwill prohibited
Landlords are prohibited from requesting or receiving key money or any amount for the goodwill of the tenant’s business from prospective tenants in exchange for securing the lease. 17 This means that landlords cannot request tenants to give any monetary consideration in securing the lease or accept monetary benefits from tenants for this purpose. With this statutory restriction, tenants are protected from making unnecessary payments to landlords. Bare in mind that this is distinguished from rent in advance which the landlord can lawfully request from the tenant. 18
7. Relocation and Demolition
Some leases may contain relocation and demolition clauses to provide landlords the right to relocate tenants or terminate the lease for redevelopment or demolition of the premises. If a retail lease contains these clauses, the Act provides protections to the tenant in this regard.
In relation to relocation, the landlord is required to provide at least three months’ written notice which must contains sufficient details of the proposed refurbishment or redevelopment of the premises. 19 The relocation notice must also contain details of the reasonably comparable alternative retail shop to be made available to the tenant for the tenant’s consideration. 20 If the is not satisfied with the proposed arrangement, the tenant may terminate the lease within one month after receiving the relocation notice. 21 If the tenant agrees to relocate, the landlord must bear the tenant’s costs of relocation, including the removal and reinstalment of fixtures and fittings and legal costs. 22
In relation to demolition, the landlord is required to provide at least six months’ written notice before terminating the lease. 23 The tenant can terminate the lease early by giving the landlord at least one month written notice. 24 Compensation is payable by the landlord for the fitout of the premises (to the extend it was not carried out by the landlord), and if the demolition is not carried out or is not carried out within a reasonable time after the termination. 25
8. Assignment of Lease
During the lease term, the outgoing tenant (‘the assignor’) has the right to assign the lease to another person (‘the assignee’), subject to the landlord’s agreement. The Act provides a pre-assignment procedures which all parties must observe:
- The outgoing tenant or assignor must provide the prospective assignee an assignor disclosure statement and copy of the current lease at least 7 days before the day the proposed assignee signs the business sale contract, or the day assignor seek consent to the assignment from the landlord, whichever is earlier. 26
- Before the assignor seeks the landlord’s consent to the proposed assignment, the assignee must provide the assignor an assignee disclosure statement to be provided to the landlord. 27
- When the assignor seeks landlord’s consent, the assignor must provide the landlord a copy of the assignor disclosure statement given to the assignee. 28
- At least 7 days before the assignment of lease, the landlord must give the assignee a lessor disclosure statement and a copy of the lease. 29
The above procedure protects the incoming tenant by ensuring that they have sufficient time to seek legal and financial advice before entering into the lease. The assignee enjoys the same statutory right to terminate the lease or seek reasonable compensation if the landlord’s disclosure statement is defective or misleading as explained in paragraph 2 above.
As for the outgoing tenant or assignor, the Act protects the assignor and its guarantors by releasing any liability under the lease resulting from a default by the assignee once the assignment is competed. 29 To receive this protection offered by the Act, the assignor must have fulfilled its disclosure obligations under the Act.
In comparison to standard commercial leases, the Queensland retail shop leases provide far more protection to the tenants as we have mentioned above. It is important for tenants to understand their minimum rights and protections under the Act before and during the lease term and when assigning the lease.
Note: These are general advice and you should always seek independent legal advice suitable for your situation.