Tenant’s guide to retail leasing in Victoria

Retail leasing in Victoria is governed by the Retail Leases Act 2003 (Act). The Act sets out the minimum standards that both you and your landlord must follow in retail leasing relationships.

The Act only covers businesses that are used mainly for the sale of goods and/or services in the retail sector. To be covered under the Act, the rent that you pay must be less than $1 million a year. Your business will also be excluded from coverage under the Act if it:

• is a storage, manufacturing or wholesaling business
• is a listed corporation or subsidiary of a corporation
• has a lease term of less than a year
• has a lease term (excluding any options for renewal) of 15 years or longer.

If you are unsure if the Act covers you, you should ask your landlord and seek legal advice before you enter into a lease. This will ensure that you follow the correct procedures. As a tenant, it is beneficial for you to be under the umbrella of a retail lease as the Act seeks to give added protection to tenants.

Commercial terms

You should negotiate the commercial terms for your retail lease with your landlord before entering into the lease. Some commercial terms that you should consider include the:

• length of the lease’s term
• rent; and
• process of rental increases over time.

Once you and your landlord agree on the terms, you should document them in a heads of agreement or letter of offer. The landlord’s agent or lawyer can then use this information to draft the lease.

Landlord’s disclosure requirements

Before entering into a new retail lease, the landlord must provide you with:

• a written copy of the lease
• the Victorian Small Business Commissioner information brochure; and
• a copy of a disclosure statement for the premises (this must be given at least 14 days before the lease commences).

The disclosure statement will set out the:

• key commercial terms of the lease
• projected or estimated outgoings; and
• details of any other agreements made between you and your landlord.

If the landlord does not provide the disclosure statement, you can withhold paying rent until you have received it.

Can the landlord charge me with lease preparation expenses?

The landlord is not permitted to pass on their costs for lease preparation and negotiation to you as the tenant.

Do I need to pay a security bond?

It is common for the landlord to require you to put up the equivalent of between three to six months' rent as security under the lease. This security bond is money paid by you to the landlord (held on behalf of you) as a security deposit for the performance of your obligations under the lease in an interest-bearing account. The landlord can claim this money without notice and require you to “top up” the security bond or bank guarantee if you:

• fail to pay rent; or
• fail to make good your obligations under the lease.

Note that a landlord should not access these funds unless you have breached the lease. If you have performed all of your obligations under the lease, the landlord must return the security deposit to you within 30 days after the lease ends.

Can I claim compensation from my landlord?

During the term of your lease, it is possible to rely on the Act to claim compensation in very limited circumstances. In this regard, you can claim compensation from a landlord for loss or damage if the landlord has:

• restricted your access to the premises
• caused disruption to your business; or
• failed to fix damages to your premises that they were legally obligated to fix.

You must give the landlord written notice of the loss or damage as soon as practicable after it is suffered. Failure to do so will not affect your right to compensation.

Can a landlord force me to move my business?

A landlord can only force you to relocate your business if there is a refurbishment or relocation clause in the lease.

The Act also regulates any relocation provisions in your lease. It notes that the landlord must pay reasonable compensation to facilitate your move. They must also offer alternative premises for your business.

If you and your landlord cannot agree on the amount to which you are entitled, that amount is to be determined by an independent quantity surveyor appointed by either an agreement between you and your landlord or if there is no agreement, the Small Business Commission. You and your landlord will pay for the costs of the independent quantity surveyor in equal shares.

Can the landlord stop me from assigning my lease?

Within Victoria, a landlord cannot stop you from assigning your lease. However, you must follow the procedure of assignment that is outlined in the Act. As a general rule of thumb, you will need to:

• obtain your landlord’s written consent to assign the lease
• provide as much detail (including financial) as possible about the incoming tenant to the landlord; and
• provide the incoming tenant with an updated disclosure statement.

We can help

Whether you are a tenant or landlord, and you'd like some assistance in working out your rights and responsibilities, please contact our Commercial leasing team on 03 9550 4600.