Before you sign a lease for a retail premises in New South Wales, there is a question that needs to be answered: does the Retail Leases Act 1994 (NSW) apply to this lease, or not?
The answer matters more than most people realise. If the Act applies, a significant body of statutory protections comes with it, covering everything from what the landlord must disclose before you sign, to what outgoings you can be charged, to how disputes are resolved. Those protections exist regardless of what the lease document says. A clause that contradicts the Act is simply void.
If the Act does not apply, the lease is governed by contract law and whatever the parties have agreed. That is not necessarily worse, but it means the tenant has no statutory floor to fall back on.
We regularly see leases that have been drafted or signed without anyone properly working through this question. Sometimes that means a tenant has operated for years without the protections they were entitled to. Other times it means a landlord has included provisions in the lease that are unenforceable, and they find that out at the worst possible moment.
What the Retail Leases Act Actually Does
The Retail Leases Act 1994 (NSW) is a piece of legislation specifically designed to regulate the relationship between landlords and retail tenants. It was introduced to address a significant imbalance in bargaining power. Landlords, particularly those owning shopping centres, were in a position to impose terms on smaller retail tenants that those tenants had little practical ability to resist.
The Act does not take over the entire negotiation. Parties are still free to agree on rent, term, fit-out contributions and many other commercial matters. What the Act does is set a floor beneath the negotiation. Certain things cannot be agreed away, and certain obligations are imposed on landlords regardless of what the lease says.
The key protections it provides include the requirement for a landlord to serve a disclosure statement before the lease is signed (a plain English break down of key commercial terms), limits on what can be recovered as outgoings, restrictions on ratchet clauses in rent review provisions, rules around security deposits and the Retail Bond Board, limitations on the landlord's right to recover their own legal costs from the tenant, and the prohibition on passing capital works costs to the tenant.
It also provides a dispute resolution pathway through the NSW Civil and Administrative Tribunal (NCAT), which is generally faster and more accessible than court proceedings.
The Two Ways the Act Can Apply
The Act applies in two distinct situations, and it is worth understanding both of them separately.
The first is where the premises are a retail shop. Under the Act, a retail shop is defined as premises used for the carrying on of a retail business. That sounds straightforward, but the definition is broader than it might appear. It covers not just shops selling goods but a wide range of service-based businesses, including hairdressers, dry cleaners, travel agents, gyms, cafes and restaurants.
The second situation is where the premises form part of a retail shopping centre. The Act defines a retail shopping centre as a building or group of buildings owned by the same landlord in which at least five retail shops are leased to various tenants. Where a premises is located within a retail shopping centre, the Act can apply even if the particular use of those premises would not otherwise qualify as a retail business.
This second category catches a number of businesses that operate in shopping centres and assume they are not covered, including accountants, medical and allied health practices, and other professional service providers. If your premises are in a shopping centre with five or more retail tenants under common ownership, the Act very likely applies to your lease.
The Exclusions: When the Act Does Not Apply
Even where a premises might otherwise fall within the Act's scope, certain leases are excluded.
Leases excluded from coverage under the Act include:
Shops that have a lettable area of 1,000sqm or more.
Leases with a term of less than six months, with no right of renewal.
Leases with a term of 25 years or more.
Leases for premises used wholly or predominantly for storage or warehousing that are not accessible to the public.
Leases of premises used primarily for the carrying on of a business that does not fall within the categories of retail business listed in Schedule 1 of the Retail Leases Regulation 2022, and that is not otherwise a retail shop under the Act.
Schedule 1 of the Retail Leases Regulation 2022 is worth reviewing to confirm whether your type of business appears. If it does not, and the premises are not in a retail shopping centre, it is worth getting advice on whether the Act applies to your arrangement at all.
What Happens When the Act Applies but the Lease Ignores It
This is where the practical consequences become very real. The Retail Leases Act is not a set of default rules that can be contracted out of. Where a lease term is inconsistent with the Act, that term is void to the extent of the inconsistency. The Act's provision applies in its place.
Consider a few examples of how this plays out.
A retail lease that includes a clause requiring the tenant to pay the landlord's legal costs for preparing the lease. Under the Act, that clause is void. The tenant is not required to pay those costs, regardless of what the lease says.
A retail lease that includes a rent ratchet clause, providing for rent to increase by the greater of 4% or CPI. Under the Act, that clause is void. The mechanism for calculating the increase cannot operate in a way that introduces that kind of uncertainty for the tenant.
A retail lease where the landlord holds the cash security bond directly rather than lodging it with the Retail Bond Board. The obligation to lodge with the Board is a statutory one. Holding the bond in any other way does not comply, and the landlord cannot enforce the bond in the way the lease contemplates.
In each case, the problem is not just that a clause is unenforceable. The problem is that the parties may have operated for months or years on the basis of a lease that did not actually reflect their legal rights and obligations. When a dispute arises, the correction of these inconsistencies can work in either party's favour depending on the circumstances, which adds another layer of unpredictability. It can also incur significant legal costs.
The Act Applies from the Moment the Relationship Begins
It is important to understand that the Act's protections are not triggered only once the formal lease is signed. They apply from the moment the landlord-tenant relationship is entered into in connection with a retail shop or premises in a retail shopping centre.
The disclosure statement obligation, for example, arises before the lease is signed. The landlord must provide it at least seven days in advance. That obligation exists regardless of whether the formal lease document has been executed.
Similarly, if a tenant takes possession and begins trading from premises before the lease is finalised, the Act can still apply to that arrangement. The informal nature of the arrangement does not strip the tenant of their statutory protections.
Renewals and Assignments: Does Coverage Continue?
A question that often arises on the exercise of an option to renew is whether the Act continues to apply to the renewed lease. The answer is generally yes, provided the original lease was covered and the renewed lease still satisfies the conditions for coverage. The renewal is treated as a continuation of the leasing arrangement, not a fresh transaction that might escape the Act's reach.
Where a lease is assigned, the incoming tenant steps into the position of the outgoing tenant. The Act applies to that incoming tenant in the same way it applied to their predecessor, and the landlord's obligations under the Act continue accordingly.
Why Both Landlords and Tenants Need to Know This
The Retail Leases Act is often thought of as a tenant protection statute, and in some respects that is accurate. Most of its provisions are designed to protect tenants from unfair terms and to ensure they have access to information before they commit to a long-term lease.
But landlords have a significant interest in understanding the Act as well. A landlord who does not comply with the disclosure statement requirement, who holds a cash bond directly rather than lodging it with the Retail Bond Board, or who includes void provisions in the lease is not simply inconvenienced by those mistakes. They can find that their ability to enforce the lease, or to recover what they are owed, is compromised as a direct result.
A landlord who prepares a retail lease without understanding whether the Act applies, and what it requires, is taking a real risk. The cost of getting specialist advice before the lease is finalised is a fraction of the cost of trying to fix problems once a dispute has arisen.
Getting Advice Before You Sign
Whether the Retail Leases Act applies to your lease is not always a straightforward question. The nature of the business, the location of the premises, and the term of the lease all feed into the analysis. Getting it wrong in either direction creates problems.
At Thornton + King, we act for both landlords and tenants in retail leasing matters across NSW. Our team includes Accredited Specialists in Property Law with extensive experience in the Retail Leases Act and how it applies in practice. If you are about to enter into a retail lease and are not sure where you stand, contact us before you sign anything.
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Disclaimer
The information in this article is intended as a general guide only and does not constitute legal advice. Retail leasing is a specialist area and the law can change. You should obtain advice from a qualified retail leasing lawyer in relation to your specific circumstances.
