Whether you are a landlord or a tenant, correctly identifying and understanding the regulatory framework for your commercial lease is crucial from the outset.
A key consideration involves determining whether your commercial lease is also a retail shop lease.
This article, by Caitlin Phan, explores the nature of commercial and retail shop leases in Western Australia, and some of the key distinctions between them.
What is a commercial lease?
Broadly speaking, a commercial lease involves the leasing of any commercial real estate, including industrial, office and retail assets.
Non-retail commercial leases are generally regulated by common law principles, with limited statutory interference from legislation such as the Property Law Act 1969 (WA), the Transfer of Land Act 1893 (WA), and the Planning and Development Act 2005 (WA).
Because the regulatory framework for non-retail commercial leases is “light touch”, the parties are for the most part free to negotiate the terms of their bargain as they see fit.
What is a retail shop lease?
A retail shop lease is a specific type of commercial lease that is regulated by the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (“Retail Shops Act”).
A commercial lease can be a retail shop lease in one of two ways.
- A retail shop lease in its own right. This is where the use of the premises wholly or predominantly involves the sale of goods by retail, or if the use is one of a select number of prescribed specified businesses.[1]
- A deemed retail shop lease. This is where the lease is not a retail shop lease in its own right, but is nonetheless deemed to be a retail shop lease because the premises are being used for a business situated within a retail shopping centre.[2] In other words, a commercial lease can be deemed to be retail shop lease simply by virtue of surrounding tenancy mix.
If a commercial lease is a retail shop lease, the Retail Shops Act imports additional limitations, rights and obligations into the landlord-tenant relationship that do not apply to other commercial leasing arrangements, including in relation to disclosure, tenure entitlements, rent reviews, outgoings and cost recovery, and termination rights.
It is not possible to “contract out” of the Retail Shops Act, and any provision in a retail shop lease that is inconsistent with the Act is void and unenforceable.
Some important exceptions
There are exceptions to the application of the Retail Shops Act, including the following.
- Lettable area. Where the lettable area of the leased premises exceeds 1,000m2.[3]
- Listed companies. Where the lease is held by a listed company, or a subsidiary of one.
- Excluded by regulation. Regulation 3AB of the Retail Shops Regulations specifically excludes vending machine and ATM leases from the Act.
In some cases, including where mixed-use businesses or fluctuating tenancy mixes are involved, it may be difficult to determine whether the Retail Shops Act applies.
A further layer of complexity arises due to the fact that, based on the law as it currently stands, it is possible for a commercial lease to move in and out of the Act’s application during the life of the lease[4].
Some key distinctions
A non-exhaustive list of some important differences between non-retail commercial leases and retail shop leases is set out below.
| Non-retail commercial lease | Retail shop lease | |
| Disclosure requirements | No mandatory disclosure. | The landlord must provide the tenant with a prescribed form of disclosure statement (including various attachments), as well as a tenant guide, at least 7 days before the retail shop lease is “entered into”.[5] |
| Lease term | No statutory minimum term. The parties are free to negotiate and agree on the initial lease term, and any option terms. | Generally, the tenant has a statutory entitlement to a minimum total tenure of 5 years (including initial and option terms). If the lease provides for lesser tenure, the tenant may be entitled to an implied statutory option of renewal to make up the difference. |
| Rent reviews | The parties are free to negotiate and agree on the method of rent reviews. | Rent reviews are regulated. For example, the lease can only provide for a single basis review, and ratchet clauses are specifically prohibited.[6] |
| Outgoings recovery | The parties are free to negotiate and agree on the outgoings that are recoverable by the landlord from the tenant. | Outgoings recovery is regulated. The landlord must provide the tenant with annual outgoings estimates and (generally audited) reconciliations, and the method of apportionment is guided by the Act. The right to recover certain types of outgoings is also limited or prohibited, including in relation to management fees, land tax, and capital and structural costs. |
| Other cost recovery | The parties may agree that the tenant will be responsible for the landlord’s legal or other costs in connection with the lease. | The landlord is prohibited from claiming any legal or other costs relating to the preparation or negotiation of the lease or any extension / renewal, mortgagee consent, or compliance with the Act. |
| Termination rights | The landlord’s right to terminate on the basis of tenant default is subject to the requirements of section 81 of the Property Law Act 1969 (WA). Otherwise, the parties are free to negotiate and agree on any break or termination provisions they wish. | Provisions relating to early termination of the lease are further regulated, especially during the first 5 years of the tenant’s tenure. Some early termination provisions may require State Administrative Tribunal approval to be enforceable. Relocation clauses are also specifically regulated. |
The differences between non-retail commercial leases and retail shop leases can lead to potential claims and disputes in circumstances where the application of the Retail Shops Act is not identified and understood at an early stage.
If you need assistance
We can advise and assist landlords, tenants and real estate professionals with all types of commercial and retail shop lease matters, including document preparation, negotiation, and disputes.
Disclaimer
This post has been prepared as a general summary only. It is not, and is not intended to be, legal advice with respect to any particular matter. This post should not be relied on with respect to any particular matter without taking legal advice. Stork Davies Legal Advisors disclaims liability to any person who relies on this post without taking legal advice from the firm.
[1] Currently, regulation 3A of the Commercial Tenancy (Retail Shops) Agreements Regulations 1985 (WA) (“Retail Shops Regulations”) prescribes the following as specified businesses: drycleaning, hairdressing, beauty therapy and treatments, shoe repair (which may include key cutting and engraving), and sale or rental of video tapes, DVDs, electronic games or other similar amusements.
[2] Section 3(1) of the Retail Shops Act defines a retail shopping centre to mean “a cluster of premises – (a) 5 or more of which are used for the carrying on of a retail business; and (b) all of which – (i) have, or upon being leased would have, a common head lessor; or (ii) comprise lots on a single strata plan under the Strata Titles Act 1985”. The definition also provides for a means to quarantine retail shopping centres to one or more floors of a multi-level building: “if the premises are in a building with 2 or more floor levels, [the retail shopping centre] includes only those levels of the building where a retail business is situated”.
[3] See our article Retail shop leases and lettable area for a discussion of lettable area in the context of retail shop leases.
[4] See the Supreme Court of Western Australia’s decision in 480 Hay Street Pty Ltd v Uber Australia Pty Ltd [2019] WASC 461.
[5] Section 3(4) of the Retail Shops Act provides that a retail shop lease is entered into when the tenant takes possession, the tenant commences paying rent, or the lease is signed by both parties (whichever occurs first).
[6] See our article Rent reviews under retail shop leases for a detailed discussion of these issues.