The Retail Premises Lease in Victoria
When you are in business or you decide to go into business one of the most daunting experiences is finding your business address and entering into a lease with the landlord.
If you are a sole trader the lease will be in your personal name and if you have set up as a company then the lease will be in the name of the company and more than likely you will be required to guarantee the performance of your companies obligations personally.
So you take on the obligation to pay between $10,000 to $20,000 per year in rent, as if that’s not a hard thing to do, and then you have to enter into a lease which is a very important document giving you proprietary rights to occupy the premises without interference from the landlord/owner.
This blog is about the lease. Do you know that in Victoria we have the Retail Leases Act 2003 which provides a number of rules about the rights and obligations of the landlord and the tenant. The legislation is managed by the Victorian Small Business Commissioner and its website contains a wealth of information see http://www.vsbc.vic.gov.au/
The best document for you to read is the information brochure found here at http://www.vsbc.vic.gov.au/who-we-help/retail-tenants-landlords/vsbc-information-brochure/
So what is a retail premises. A retail premises is best described as premises that are to be used wholly or predominantly for the sale of goods by retail or the retail provision of services, in most cases. There are a number of exception but for this discussion we will make the assumption that we are operating a retail business in country Victoria.
The Law Institute of Victoria have recommended a standard from of Retail Premises Lease that is fair for both the landlord and tenant. By fair I mean that the document is evenly balanced in its obligations and requirements for the parties having regard to the Law.
Now the terms of the lease that you might enter into are very important. At this stage you are negotiating with the landlord or the landlord’s agent. It is a significant advantage to see your solicitor, at this time in the business transaction, that is before any agreement has been reached. Once however you have agreed to the basic terms ensure that you do not sign anything until the lease paperwork has been prepared and vetted by your solicitor. The Retails Leases Act 2003 provides protection to tenants and sometimes one could find themselves looking at documents which do not reflect the protection provided by the legislation.
Your lease may provide for an option to renew and if it does you will need to understand the landlord’s obligation to give you notice to elect that option and for you to notify the landlord within your approved time frame. This time frame is sudden death if you fail to give notice within the set timeline, usually 6 to 3 months before the expiry of the lease, as the landlord may refuse to grant your option to renew.
During the first term of your lease you will have rent renewals most of which would be set to the CPI or a percentage increase. The Law does not allow the landlord to have a ratchet clause which prohibits rent reducing, so be aware that sometimes on a market review the lease may contain a provision that the rent cannot be less than the prior rent. This clause is void at Law.
I think it vital for you to talk to your lawyer before you start this Retail Lease process. Even a lease renewal needs careful understanding as the market rent renewal process is complex and your position needs to be properly protected. Feel free to call us for a 10 min free consult on 0419 200 223. Next week will will talk about the lease renewal and assignment.