Commercial Tenancy (Retail Shops) Agreements Act 1985(Form 6) |
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[Section 6A]
Entering into a lease of retail shop premises for your business means you are entering into a contract that creates binding legal obligations between yourself and the Landlord (""Lessor.").
Before you enter into a lease, you should fully understand your obligations, liabilities and rights under the lease.
The Commercial Tenancy (Retail Shops) Agreements Act 1985 (and its amendments) contains provisions regulating retail shop leases, many of which will over-ride any contrary provision in a lease.
| A lease provision that is contrary to the provisions of the Act has no effect ("void"). |
To make sure you understand your obligations, liabilities and rights before entering into the lease you should:
This Tenant Guide is merely a guide intended to help you to understand some of your legal obligations under a retail shop lease and, in particular, to understand your rights under the Act. You should not rely on this Guide as a substitute for reading the documents and obtaining independent advice before signing any Offer to Lease, Agreement to Lease, or any other related documents.
The Act provides that your retail lease will "commence" either
When you take possession of the keys to the shop premises; or
When you commence paying rent; or
When both parties sign the lease.
| You should get independent advice before doing any of those things. |
Experts in the fields of legal, financial, business, taxation and property matters will be able to help you make the decision to enter into a lease or an agreement to lease and the terms of the contract that should be negotiated.
For legal advice, you should consult a solicitor with experience in commercial property and preferably in retail shop leasing matters.
Industry advice is also available from experts in accounting and valuation as well as retail representative groups and tenant advocates. The Western Australian Government's Small Business Development Corporation (SBDC) is also a source of guidance to prospective tenants.
| You should understand the terms of the lease before signing it. |
All elements in a lease agreement eg rent, term, options, outgoings and related costs such as documenting the lease need to be understood by you. These matters are open to negotiation with the Lessor but the basis of your agreement is subject to the provisions of the Act.
The Lessor must provide you with a "Disclosure Statement" before you enter a new retail shop lease.
You can terminate the lease at any time up to 60 days after the lease was "entered into"
You can go to the Commercial Tribunal and get an order for compensation for any pecuniary loss suffered as a result of
not being given a Disclosure Statement; or
false or misleading information contained in a Disclosure Statement.
The Disclosure Statement is to be in a prescribed form (Regulation 4 Form 1) and is to contain all oral and written agreements and representations made by the Lessor or through his/her agent(s) in negotiations together with relevant information including but not limited to:
In turn, the Lessor may ask for details of your retailing experience and of your financial capacity to establish and trade profitably and professionally. This may involve you presenting a satisfactory business plan to the Lessor.
If you require any special fitout or services for your tenancy, you will certainly need to formally disclose these to the Lessor along with any other evidence to support your case.
The Lessor doesn't have to lease the shop premises if it appears that a business will not add value to the property investment. Your disclosure, like the Lessor's, must be correct and contain no misleading information. Otherwise, the Lessor could institute legal proceedings against you outside the provisions of the Act.
| You should understand the "Disclosure Statement" before signing it. |
In signing the Disclosure Statement you are acknowledging you understand the basis for the retail lease with the Lessor. It is vital that you satisfy yourself, through prior enquiry, particularly taking appropriate legal and expert advice on all relevant information regarding the retail shop and (where applicable) the shopping centre building and property.
A new retail shop lease must include this "Tenant Guide" at the front of the lease.
You can terminate the lease at any time up to 60 days after the lease was "entered into" if there was no "Tenant Guide" provided with the lease.
You can go to the Commercial Tribunal and get an order for compensation for any pecuniary loss suffered as a result of not being given a "Tenant Guide".
Generally
| A prospective retail tenant should establish the area under the lease and have this surveyed (if none is available) as early as possible in the agreement - especially in preparation for a net rent lease. |
Specifically
Certain types of specified business are also covered including drycleaning, hairdressing, beauty therapy, shoe repair and video stores and some petrol station agreements.
| If you are not sure whether your business is covered by the Act, get advice. |
Minimum of 5 years
If you are entering a new retail shop lease for the first time, the Act
provides you with a right to a minimum of a five year lease to help you
establish and develop your business. This can be a combination of term and
options to extend your lease to the 5 year period (Regulation 6 Form 3).
Can be longer... or shorter
The tenure you negotiate can be greater than five years. Under some
circumstances, you can also agree with the Lessor to a term shorter than five
years but this must be your decision. (The approval of the Registrar
should be sought in these circumstances). It would be prudent to take expert
advice on the implications for your business if you do not take up the Act's 5
years` tenancy right.
Fixed period
A lease is for a fixed period.
At the end of the lease...
At the end of the current term and your use of any options, the Lessor does
not have to renew the agreement and the Lessee has no further rights to occupy
the premises. All outstanding obligations under the lease should have been
satisfied at this time. After the expiry of the lease agreement your continued
occupancy of the premises will be at the Lessor's sole discretion. This interim
period may be on a month to month basis.
Options in the lease
It is in your commercial interests to ensure that any options you hold to
extend your occupancy are recorded by you allowing a sufficient lead time to
exercise the option by the date set out in the terms of the lease. That option
will lapse unless you inform the Lessor that you wish to renew your lease
(exercising your option) in the manner and timeframe as set out in the lease
document.
Assume you won't be able to renew
You should not rely on a new lease being entered into at the end of the
lease period.
Therefore you should:
Does the lease include redevelopment or relocation clauses?
Commercial and retail property investments need to be constantly promoted.
This can involve redevelopment of premises with works by the Lessor that can
significantly impact on your retail business. To safeguard your interests you
will need to carefully consider any redevelopment or relocation clause in the
proposed lease. If you agree to such a clause you should negotiate to ensure
that your retail business will not be in any worse situation as a result of the
Lessor's capital works initiatives. This clause could provide you with a
commitment from the Lessor for a new shop in the redevelopment. This could also
provide for a new location and rental levels comparable with your current
position.
Compensation issues also need to be specified in cases where your trade will be affected due to a less favourable shop location or higher rental structure or no new shop can be provided for your business.
Can the Act help?
The Act empowers the Registrar of the Commercial Tribunal to consider
special circumstances in approving redevelopment and relocation applications by
the Lessor. The interests of both Lessee and Lessor are considered in these
cases but may not meet all your requirements that you could have negotiated
earlier in establishing the lease terms and conditions.
Only use one method of review at a time
If you have agreed to a review of your shop rental, then at each review time
a single basis of rent review is to apply. For example, this single basis to be
specified in the Disclosure Statement (Regulation 4 Form 1) can
include, but is not limited to:
The lease, however, cannot give the Lessor the right to choose the greatest return from a range of rent types at any one review.
Can use a different method next time
The types of review may vary over the life of the lease, for example Year 1
CPI, Year 2 Market rent, Year 3 a fixed increase then a higher rate if turnover
exceeds an agreed level, Year 4 Market rent, Year 5 CPI + a percentage increase.
No "ratchet" clauses
In a rent review your rent can not be held above the current market level
(via a ratchet clause) such that the rent can never fall or go below a fixed
level. The lease must allow your rent to rise or fall to a level supported by
market evidence.
The role of the Act and the Registrar
In a market rent review, the Act provides that both parties can:
In the case of disagreement the new rent may be referred to the Commercial Registrar for determination.
Until both parties agree to the new rent level or the Registrar determines the new rent, the current rent will continue to apply. Once the higher or lower rent is agreed, adjustments will be backdated to the review date. The rate of repayment between the parties can be varied at the Registrar's discretion if the Registrar has determined the rent.
Steps needed to base the rent on turnover
The Act provides that if you have agreed to a rent based on the turnover of
your business then that agreement must be based on an agreed formula and must be
formalized in writing on a prescribed form (Regulation 5 Form 2).
The Act also recognizes the confidentiality of such figures to a retail business and limits the release and use of this information strictly in accordance with your agreement with the Lessor.
Only "'operating" expenses not "capital" expenses
The landlord's expenses are described in the Act as operating expenses.
Leases can also refer to them as "outgoings or variable outgoings ". They are
costs in operating, repairing, or maintaining the Lessor's premises including
any building common areas. Typically these costs are the rates and taxes,
cleaning, airconditioning, security, insurances and other valid expenses of
running the property. No capital expenditures (eg asset replacement) are
recoverable operating expenses.
Operating expenses and their payment are to be set out in the Disclosure Statement (Regulation 4 Form 1) and the budget attached to the lease provided by the Lessor.
You can not be asked to pay management fees - these are costs to the Lessor that are not recoverable from retail tenants.
Contributions are negotiable, but not to exceed your "relevant proportion"
Your contributions to landlord expenses are negotiable. Whilst you may agree
to a different form of contribution, the Act provides that the upper limit of
the operating expenses that you can be reasonably asked to contribute to is your
relevant proportion.
This share at the start of the accounting year is represented by the area of your shop's retail floor area in relation to the total lettable area of the shopping centre or cluster of shops.
i.e.: retail floor area in shop
total lettable area = relevant proportion
The Registrar of the Commercial Tribunal can decide on any disagreements in these matters and in certain circumstances can vary the relevant proportion during the year.
Other expenses directly attributable to your business (called "referable" expenses) for example, specialized cleaning incurred by only a few tenants, are subject to the relevant proportion limit of the shops incurring those costs.
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Audit and accounting standards - Lessors obligations
The Lessor is obliged to comply with audit and accounting standards and
timetables for preparing budgets, providing end of financial year expenditure
statements and distributing audit costs particularly on net rental agreements.
Lessor to provide estimates and statements
In "'net" lease arrangements, the Act provides that you will not have to pay
a contribution to the Lessor's operating expenses until one month after the
Lessor provides you with an annual estimate of expenditure for each operating
expense.
The Lessor is also required to supply you with an audited operating expenses statement within 3 months after the previous accounting period has ended. If this is not done you do not have to contribute to the Lessor's operating expenses until you have received the audited statement.
Act protects your contributions
If your retail shop is in a shopping centre and you have agreed to
contribute to a fund for major repair and maintenance works, your contributions
are protected under the Act. These moneys are subject to accounting and audit
provisions with no funds being able to be expended on capital works. These are
the rightful responsibility of the Lessor and would include the construction of
new extensions and the replacement of major plant and equipment.
Other contributions are also protected
The Act also extends protection to any other funds and reserves that you agree
to contribute to for specific or marketing or promotion purposes. Again the
Lessor is required to properly account for the collection administration,
expenditure and auditing of these funds.
Your opening hours are flexible
A provision in a retail shop lease which requires you to open your premises at
specified hours or times is invalid (void) under the Act.
As you have the discretion to open (or close) your business at times of your choice the Lessor can not refuse to renew your lease because of your actions. If in the future you believe this to be the reason that your lease was not renewed you may apply in writing to the Tribunal for compensation.
Your retail business will be responsible for a share (limited to the "relevant proportion") of agreed operating expenses arising from trading within standard trading hours.
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If your retail shop is enclosed in a shopping centre then for practical reasons the opening and closing times (core hours) for the centre may be less than the standard trading hours. These matters will need to be clarified in disclosure by the Lessor.
If you do not open outside standard trading hours, you can not be required to make a contribution to the expenses related to the extended hours.
If you open outside the standard trading hours, you will be charged a contribution to the expenses related to the extended hours. These are referable expenses and are limited to the relevant proportion of those shops which open during the extended hours.
Your responsibilities if you sell or sublease your business
If you choose to sell your business during the term of your lease, you (as
the Assignor) and any guarantor to your lease can not be held liable for the
performance of the ingoing tenant (the Assignee) or for any moneys including any
rent owed by the ingoing tenant from the assignment date.
The Lessor can not withhold consent to an assignment, except on reasonable grounds. The Lessor may however recoup reasonable expenses in investigating the proposed assignee for your lease.
You are entitled to assume the Lessor's approval to the assignment if you have not received a reply within 28 days after seeking that approval in writing.
If you choose to sub-lease part of your premises you will be required to seek the Lessors approval and also provide a Tenant Guide and Disclosure Statement to your Lessee. The sublease will not exclude you from your existing liabilities to the Lessor.
Lease provisions and other oral and written agreements cannot include clauses that are contrary to any provision in the Act.
In addition, the lease or other side agreements or oral agreements can not
| Some clauses may appear to create or limit aspects of the lease in an unfair or "unfriendly" way. If you are uncomfortable with the effect of any clauses in the lease, seek expert advice. |
The Act provides that, for shopping centre properties, the Lessor can not adversely affect your retail business trading in a retail shopping centre through action or inaction in:
| You should keep in mind the type and quality of services provided by the Lessor in relation to your contributions and those of all tenants in the centre. A Merchants Association can assist in coordinating the interests of all retail tenants to ensure the quality of management, cleaning and other property services support your retail businesses. |
Only after your written request and a reasonable time has been given to the Lessor to correct the problems should you take your grievance to the Commercial Tribunal. To support a claim, you need to demonstrate to the Tribunal that your business sales, gross profits, expenses and net profits have been adversely affected by the Lessor.
The Act may be able to help...
If you cannot resolve a dispute over any aspect of your retail shop lease
with the Lessor or through the Lessors property agents, the Act authorizes the
Commercial Registrar to deal with these disputes as "a question arising". Either
the lessee or the lessor may initiate this action with the Registrar by
submitting the information required by Form 4 (Regulation 7) and payment of
the prescribed fee (as at 1 July 1999, this was $29).
... informally.
The Act sets out an informal dispute resolution procedure before the
Registrar, as a mediator, to achieve solutions that are quick and inexpensive to
the parties (s.16). The Registrar can determine, for example, rent reviews
(s.11) and shop relocation agreements (s.13).
... formally.
The Commercial Tribunal can deal with more complex matters that are referred
to it by the Registrar (s.22). This is the recommended course before any Court
action is contemplated by the parties.
| Advice in such matters can be obtained from solicitors with property experience, the SBDC, industry sources, tenant advocates and retail representative groups. |
To avoid disputes, get everything in writing
To reduce the possibility of a dispute, before entering a lease you should
obtain confirmation in writing of any oral representations made during the
negotiations. These representations should be included in the Disclosure
Statement and might include: