Is it a retail lease at all?
The rules on this sheet come from the Retail Leases Act 1994 (NSW), and the Commission’s guide says no lease can override that Act. It sets out four tests for the Act to relate to your premises: it “is less than 1,000 square metres in size, sells and supplies goods and services, is a type of retail business listed in Schedule 1 of the Act, and the length of the lease is between six months and 25 years.” A business that is not on the Schedule 1 list can still be covered if the premises are in a shopping centre.
A lease can begin before anyone signs it. The guide says taking possession or starting to pay rent can start a lease, and that accepting the keys may be enough, so both sides should be clear whether handing over keys (for a pre-lease look at the space, say) is meant to start it.
Who pays for what
The guide treats the fit-out as one of the main costs of leasing, alongside rent, outgoings, insurance and the make-good at the end. Here is what it says about each cost that touches the fit-out, in the order it raises them.
A landlord can also help with the fit-out as an incentive. The guide lists a contribution to the lessee’s fit-out among the common incentives, beside rent-free periods, rent reductions and paying outgoings, and warns that incentives are sometimes set out in a separate deed, so the “true” or “effective” rent may not be obvious when you compare premises.
What the lease should say
The guide’s list of what a lease should include has twelve items. Four of them bear directly on a fit-out. In the order the list gives them, they are:
- “Who is responsible for the costs of installing fixtures and fittings in the premises (the fit-out)”
- “Who repairs and who maintains the premises and equipment”
- “The type of business the lessee intends to operate (i.e. the permitted use)”
- “Any ‘make good’ provisions”
The other eight cover the term, the rent and how it changes, securities, options, the description and address, outgoings and core trading hours. The guide adds that disputes often start over small points the lease left unclear.
The disclosure statement and its seven days
The Commission describes a Retail Lease Disclosure Statement in two parts. Part A is signed by the lessor and must reach the lessee at least seven days before a new or renewed lease begins. Part B is signed by the lessee and goes back to the lessor within seven days of receiving Part A. In a shopping centre, the guide says the items to look for in the statement include details of fit-out construction standards, and it notes that shopping centres usually set a standard of construction for fit-outs.
The council comes before the signature
The permitted use in a lease is the landlord’s permission, not the council’s. The Commission’s advice is to check with the local council, before signing, that the premises can be used for your business and which permits you will need, including from the strata manager in a strata building. Without those approvals in writing, it says, you may not be able to trade from the premises.
On its “Before you sign the lease” page the Commission goes further for anyone planning a fit-out or other building work: ask the council’s duty planner whether a development application is needed, and do not rely on what the landlord says about council rules, because zoning and planning rules can change. It also points out that rent can fall due before the building work is finished and you can open, and that a rent-free period at the start is something you might be able to negotiate. Sheet SF-02 sets out the approval pathways.
Before you sign: three habits from the guide
Price the fit-out independently
The guide suggests independent advice on the likely cost of a fit-out, from a certified quantity surveyor for example, particularly in shopping centres where construction standards can be high.
Agree what stays and what goes
It recommends agreeing in writing, in the lease if you can, which fit-out items may stay, which must be removed, and how the premises will be “made good” when the lease ends.
Record the starting condition
It recommends a report on the condition of the premises before the lease begins, signed by both lessor and lessee, which may include photos, and keeping it with the signed lease and disclosure statement.
If you are in Victoria
Victoria has its own Act, the Retail Leases Act 2003, and its own commission. The Victorian Small Business Commission says a landlord must give a prospective tenant a copy of the lease, its information brochure and a disclosure statement, with the statement and proposed lease arriving at least 14 days before the lease is entered into. Among the details it lists for the disclosure statement are the works, fit-out, refurbishment and alterations, and its brochure asks tenants to budget for fit-out, moving and make-good costs. Its disclosure statements page also names the tenant’s fit-out requirements as something a statement can include.
Other states have their own retail leasing laws and bodies. This sheet does not cover them.