As a general rule, the parties to a commercial lease are free to agree to whatever terms they choose, and there are no minimum standards or protections for a tenant. Terms are determined by the market and negotiation between the parties. Commercial leases usually heavily favour a landlord more so than a tenant. 

Whilst the parties to a retail shop lease are also generally free to negotiate the terms of the lease, the RSL Act provides a safety net of certain minimum lease standards that apply to retail shop leases and protect tenants.

The following points illustrate some of the key differences between the two forms of each lease (as applies in Queensland) 

1. Pre-Lease Disclosure 

As premised above, parties to a commercial lease are generally free to agree to whatever terms they choose, and there are no minimum standards or protections for a tenant. Conversely, in a retail lease, the lessor is obligated to disclose certain information to the tenant. Specifically, a draft of the lease and disclosure statement must be provided by the lessor to the tenant at least seven days before entering into a lease.[1] Similarly, a lessee must give the lessor a disclosure statement in this timeframe.[2] However, the tenant can, by written notice to the lessor, waive the lessor’s obligation to provide a disclosure statement in this timeframe, as long as it is provided prior to entering the lease.[3] Obligations on the lessor in relation to disclosure requirements on renewal under an option, and consequences for failure to comply with the disclosure obligation are prescribed in the Act.[4] A tenant must provide a financial advice report and legal advice report to the lessor prior to entering into a lease.[5]

2. Rent Review

For a commercial lease, rent reviews are generally conducted annually, either as a fixed percentage increase or a CPI review on each anniversary of the commencement date. If there is an option exercised under the lease, then market rent review generally applies at the commencement of any option term. Inclusion of a ratchet clause (which operates to prevent rent decreasing when it is subject to review) is not unusual in a commercial lease.

Conversely, ratchet clauses are void in retail leases under section 36A of the Retail Shop Leases Act 1994 (Qld) (‘the Act’), as are certain rent review provisions listed under section 36 of the Act. The applicable rent may be reviewed using different bases during the term of the lease, but each review must be made using only one basis.[6] For example, by reference to the current market rent of the leased shop[7], an independently published index of prices, costs or wages[8], or a fixed percentage of the base rent[9] (amongst others). If a retail lease provides for an option on the lessee’s part to renew or extend the lease at the current market rent, and current market rent has not been agreed between the parties, the Act allows a tenant to request the current market rent to be determined[10]. The tenant can request this: 

• If the lease is not more than a year – from the day that is 3 months before the option expiry date under the lease, to the day that is 1 month before the option expiry day; or
• If the lease is more than a year – from the day which is 6 months before the option expiry day under the lease to the day that is 3 months before the option expiry day. 

If the current market rent cannot be agreed between the lessor and lessee, a specialist retail valuer may be appointed, the cost of which will be shared between the parties.[11] The Act contains provisions[12] around the process of how the current market rent is determined in this manner. 

3. Outgoings 

In commercial leases, specifically in a net lease (where the tenant pays a base rent together with a contribution to outgoings), most outgoings are recoverable from the tenant. For a retail lease, under the Act, there are certain outgoings which cannot be recovered by the landlord such as land tax and insurance premiums on loss of profits.[13] The retail lease must specify the outgoings payable by the lessee[14], as well as how they are determined and apportioned[15], and how they can be recovered from the tenant.[16] A lessor must give the lessee an annual estimate (in the prescribed form) of the lessor’s apportionable outgoings for which the lessee will be liable.[17] A statement of the lessor’s apportionable outgoings must be given to the tenant in the approved form within 3 months after the end of the period to which the outgoings relate[18], The statement will compare the estimates with the actual amounts spent by the lessor for the outgoings during the relevant period.[19]

We can provide advice on a wide range of property and leasing matters. If you require our assistance, please do not hesitate to contact us via email or call 07 3220 1144.

[1] s 21B(1)

[2] s 22A

[3] s 21B(2).

[4] s 21E, 21F.

[5] s 22D(1).

[6] s 27(4).

[7] s 27(5)(a).

[8] s 27(5)(b).

[9] s 27(5)(c).

[10] s 27A(1).

[11] s 34.

[12] ss 28A-35.

[13] s 7(3).

[14] s 37(1)(a).

[15] s 37(1)(b).

[16] s 37(1)(c).

[17] s 38A(1).

[18] s 38B(2).

[19] s 38B(c).