Leasing

From the Landlord’s perspective

From the Tenant’s perspective

Leasing from a Landlord’s perspective

Are you leasing a retail shop space, which is:

• Less than 1000m²; and
• Leased for longer than 6 months but less than 25 years; and
• The tenant is not a listed corporation.

If you answered yes to all of the above questions then you need to be aware of your responsibilities under the Business Tenancies (Fair Dealings) Act (“the Act”).

The Act places substantial responsibilities on landlords who let retail shop premises. Your obligations will commence prior to entering the lease as the Act prohibits any negotiations with prospective tenants until they have a copy of the proposed retail shop lease.

You are also required to give a Landlord Disclosure Statement to the tenant at least 7 days prior to entering the lease. If you fail to provide this Statement the tenant has the option of terminating the lease up to 6 months after the commencement of the lease.

The Landlord Disclosure Statement is of utmost importance. The Act requires 100% disclosure of all costs that are payable by the tenant and if the Landlord Disclosure Statement omits any outgoings or contributions you will not be able to recover these amounts from the tenant.

The Landlord Disclosure Statement needs to include the following:

• Details of the outgoings to be paid by the tenant such as land tax, local government charges and repairs and maintenance; 
• Any contributions payable by the tenant for finishes, fixtures, fittings, equipment and services;
• The method for calculating rent and the commencement date for payment of rent;
• The frequency and nature of rent reviews specifying the method in which the rent will be increased which may be based on the current market rent, an independently published index of prices, a fixed percentage base rent or a fixed annual amount; and
• Any payments for legal costs for the negotiation, preparation and execution of the lease including expenses incurred in obtaining any necessary consents from mortgagees or government agencies.

The legal obligations of landlords under the Act are stringent and seeking guidance from a legal practitioner is a good investment.

Leasing from the Tenant’s perspective

Tenants of retail shop leases need to be aware of their rights and obligations under the Business Tenancies (Fair Dealings) Act (“the Act”) which regulates retail shop leases.

As a prospective tenant you are entitled to a copy of the proposed lease as soon as you enter into negotiations with the landlord. Prior to entering the lease the landlord is obliged to provide you with a Landlord Disclosure Statement which should include the following information:

• The identification and location of the premises;
• The approximate area for lease;
• The proposed lease term and any option periods;
• The rent payable or the method of calculating the rent;
• The timing and method for rent reviews;
• The proportion of the tenant's share of outgoings; and
• The uses to which the leased area may be put.

As a tenant you are required to provide a Tenant’s Disclosure Statement to the landlord within 7 days of receiving the Landlord’s Disclosure Statement. The Tenant’s Disclosure Statement includes a statement that you are able to meet your obligations under the lease such as payment of rent and outgoings.

The Act requires that the lease be for a minimum 5-year period (including any options for renewal of the lease). If you wish the lease to be for a shorter period you are required to obtain a solicitor’s certificate stating that you have received independent legal advice on the effect of having a lease for a term less than 5 years.

You need to be aware that, under the Act, the lease is considered to be entered into when one of the following occur:

• You take possession of the premises; or
• You start paying rent for the premises; or
• The lease is signed by both parties.

Once the lease has been entered into it becomes a binding legal document. It is worthwhile obtaining legal advice on the terms and conditions of the lease to ensure that you understand your rights and responsibilities under the lease.