Does your Business fall into the Retail Shop Leases Act?
What is a Retail Shop lease and when does your Business fall into this category?
A Retail Shop lease is a Lease of a Premises situated in a Retail Shopping Centre or where the Tenant’s business is predominantly or wholly used for the operation of a retail business. There are exclusions to the definitions of Retail Shop, Retail Shopping Centre, and Retail Business under the Retail Shop Leases Act that you may not be aware of, so it is important to consider these, against the Premises and the Tenant’s business to ensure that the Lease is correctly classified.
Why does it matter whether your lease falls under the Retail Shop Leases Act?
The Retail Shop Leases Act adds further administrative requirements and obligations on both Landlords and Tenants that are extremely time-sensitive, and non-compliance can result in unintended consequences in certain circumstances such as giving rise to a Tenant’s right to terminate the Lease, or a Tenant not being released from their obligations under a Lease on assignment.
The Retail Shop Leases Act regulates certain terms under a Lease including (but not limited to):-
Landlord is prohibited from passing on their legal fees to a Tenant for payment;
Outgoings:-
- ‘Land Tax, expenditure of a capital nature, contributions to a depreciation or sinking fund, insurance premiums for loss of profits, payment of an excess in relation to a claim on the lessor’s insurance policy for the centre or building or associated areas, landlord’s contribution to merchants’ associations and centre promotion funds and payment of interest and charges on amounts borrowed by the lessor’ must be excluded from the definition of Outgoings payable by the Tenant.
- The Lease must include provision specifying the Outgoings payable by the Tenant, how they are determined and apportioned and how they may be recovered by the Landlord from the Tenant.
- The Landlord must give the Tenant an annual estimate of Outgoings and an audited statement of Outgoings within the timeframes specified under the Act.
Disclosure:-
- A Landlord and Tenant have certain disclosure obligations to each other upon the commencement of a new Lease, exercise of an Option and assignment of Lease;
- It is extremely important that the parties adhere to their disclosure obligations within the timeframes specified under the Act as the consequences for non-compliance include a Tenant’s right to terminate within the first six months of the Lease, and a Tenant not being given a statutory release for their obligations under the Lease on an assignment of Lease.
Rent Reviews:-
- Rent is not to be reviewed more than once in each year of the Lease;
- The Act establishes certain requirements for an appointed Valuer to consider in a Market Review;
- Ratchet provisions and certain other provisions included in a Lease that relate to Rent Reviews that are not in accordance with the Act under Leases may be void.
This blog post is intended to be an overview of the Retail Shop Leases Act and its operation and is in no way intended to cover all aspects of the Act, as its scope is significant. Retail Shop Leases should be treated with caution and parties’ obligations should be promptly actioned in accordance with the Act to ensure compliance and to avoid unintended consequences. We strongly recommend if you are a Landlord or Tenant under a Retail Shop Lease that you speak with us, the experts, to ensure your compliance, and so your rights, are protected at all times.
This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers takes no responsibility for any use of the information provided in this article.
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