Many small business owners sign commercial leases without realising that the Retail Leases Act 1994 (NSW) provides them with significant legal protections that a landlord cannot simply contract out of. If your business operates from retail premises, understanding these protections is essential.
Does the Retail Leases Act Apply to My Premises?
The Act applies to retail shop leases — which covers most shops and businesses that supply goods or services directly to the public. This includes restaurants, cafes, hairdressers, medical and legal practices, gyms, and retail stores. It generally does not apply to offices, warehouses, or large businesses with a significant turnover.
Key Protections Under the Act
Minimum 5-Year Term
Unless you elect otherwise in writing, you are entitled to a minimum 5-year lease term. This includes any options to renew. The purpose is to give tenants security of tenure and protect their investment in fitout and goodwill.
Disclosure Statement
The landlord must provide you with a disclosure statement at least 7 days before you enter into the lease. The disclosure statement sets out key financial information including estimated outgoings, details of the premises, and any demolition or redevelopment plans. Failure to provide a proper disclosure statement can allow you to terminate the lease.
Restrictions on Outgoings
The Act restricts which outgoings (expenses) a landlord can pass on to tenants. Management fees, land tax, and capital costs are generally not recoverable from retail tenants. Outgoings must be itemised and estimated in the disclosure statement.
Lessor's Fitout Contribution
If the landlord promises to contribute to your fitout costs or provide rent-free periods or other incentives, these must be set out in the lease in writing. Verbal promises are not enforceable.
Turnover Rent
If your lease includes a turnover rent component, strict rules apply to how turnover is calculated and what records must be kept.
Dispute Resolution
Retail lease disputes in NSW are handled by the NSW Small Business Commissioner before going to NCAT (NSW Civil and Administrative Tribunal). This provides a relatively accessible and cost-effective process for resolving disputes.
Assignment and Subletting
A retail tenant generally has the right to assign the lease when selling the business, subject to the landlord's consent (which cannot be unreasonably withheld) and the incoming tenant meeting certain criteria. The landlord may require the incoming tenant to demonstrate financial capacity and business experience.
Key Caution
While the Retail Leases Act provides important protections, it does not make every lease term fair. Rent levels, rent review mechanisms, make-good obligations, and many other terms are still negotiable — and a bad lease can cause serious financial harm. Always get legal advice before signing.
At James Papas Solicitors, we review, negotiate, and draft retail and commercial leases for both landlords and tenants across Western Sydney. Call us on (02) 9633 3122. Your first consultation is free.
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