Commercial Lease

In Victoria, entering into a commercial lease involves several key factors that both landlords and tenants need to be aware of to ensure a fair and legally sound agreement. Commercial leases in Victoria are primarily governed by the Retail Leases Act 2003 (Vic)(Act) for retail premises and common law principles for non-retail leases.

The main two types of commercial lease are listed below:

• Retail leases are governed by the Retail Leases Act 2003 which offers additional protections for tenants in retail premises like shopping centres and individual retail shops. This law ensures greater transparency and limits landlords from exploiting tenants.
• Non-retail commercial leases like offices, warehouses and industrial spaces are not governed by this Act so the terms are negotiated more freely between parties but still must comply with general contract law.

Retail Leases

Retail leases in Victoria are governed by the Act which provides greater protections for tenants in certain retail premises.

The landlord must provide a Disclosure Statement to the tenant which outlines key terms and conditions of the lease including rent, outgoings and lease duration which must be provided before the lease is signed.

Under the Act, the landlord is not allowed to require the tenant to pay for the landlord’s legal or other costs associated with preparing the lease.

Permitted Use of Premises

The lease should clearly state the permitted use of the premises ensuring the tenant is only using the property for the agreed purposes like retail store and office. This is crucial for zoning and compliance with local council regulations.

It is to note that the restrictions on what type of business can operate on the premises can also affect the tenant’s ability to expand or alter the nature of the business.

Dispute Resolution

The lease should outline a process for resolving disputes. In retail leases, disputes may be referred to the Victorian Small Business Commission (VSBC) for mediation or resolution which offers a low-cost, less formal alternative to litigation.

In non-retail leases, dispute resolution methods such as arbitration or mediation should be negotiated and included in the lease.

Early Termination or Break Clauses

The lease should specify under what circumstances the lease can be terminated early whether by mutual agreement or through a break clause.

Retail leases provide specific rights to terminate if the landlord breaches the lease or if there are issues like failure to provide access.

Outgoings

Outgoings are expenses the tenant may be required to pay in addition to the rent including rates, utilities, insurance and maintenance.

The lease must specify which outgoings the tenant is responsible for and outline how these costs are calculated. In retail leases, the landlord must provide a clear estimate of outgoings annually.

Rent and Rent Reviews

The lease agreement will outline the base rent to be paid by the tenant which could be monthly, quarterly or annually.

Commercial leases also typically allow for rent reviews during the lease term. Reviews can be based on fixed increases, Consumer Price Index (CPI) or market rent reviews.

In retail leases, the Act regulates the process for rent reviews to prevent unfair rent increases.

Term of Lease and Options for Renewal

The length of the lease term and any options to renew are critical. A lease agreement should clearly specify the initial lease term like 3, 5 or 10 years and whether the tenant has the option to renew at the end of the term.

In retail leases, the Act requires landlords to offer a minimum five-year term unless the tenant waives this right.