Retail Leases - Tenants, did you know you have the right to a minimum term of five years?
One of the protections provided by the Retail Leases Act 2003 (“the Act”) to retail tenants is the right to a minimum term of 5 years.
Long term lease versus short term lease
Security of tenure is extremely important for businesses which operate out of leased premises. It is vital for tenants to have time to build goodwill and add value to their business as well as to depreciate the costs associated with fitting out the premises.
Conversely, a tenant may be cautious about entering into a long term lease in case the premises/location turns out to be unsuitable or the business is unsuccessful. Or the tenant may want a short term lease to start with, e.g. in the case of a “pop-up” shop.
On occasion the landlord may only be able to provide a short term lease due to re-development plans or a desire to use the premises themselves or they may have the intention of selling with vacant possession. In such cases a 5 year Waiver Certificate may be applied for at the time of negotiating the lease.
5 Year Waiver Certificates - surrendering the right to a 5 year term
Under the Act tenants have the right to a 5 year term but they can waive this right for a shorter term lease.
A minimum term of 5 years can be waived if:
- the Victorian Small Business Commissioner (VSBC), at the tenant’s request, issues a certificate stating that the tenant knowingly wishes to waive their right to a 5 year term;
- the tenant gives the landlord a copy of the certificate.
Waiver Certificates can be downloaded from VSBC website. The tenant must sign the certificate however it can be completed and submitted by the landlord. An officer from VSBC will then telephone the tenant to explain Section 21 of the Act and ensure the tenant understands the effect of waiving its rights. Provided the VSBC is satisfied, it will issue a certificate within 21 days after being requested to do so by the tenant.
Tenants - ensure that the lease term (taking into account options to renew) if not exceeding 5 years, is sufficient to operate your business without the disruption of being forced to find new premises. A cautious tenant should request a shorter term with a series of options; however this alternative may not always be available.
Landlords – if you require the premises sooner than the 5 years, after the lease was entered into, the tenant will need to sign a Waiver Certificate to ensure that you are entitled to vacant possession.
Contact us - if you have any questions on how the length of your lease is determined under the Act (taking into account timing of options, extensions and renewals). Also contact us if you have any queries as to which leases are excluded from the operation of the Act, e.g. leases for a term of less than one year (however the Act will apply if the tenant remains in possession for more than a year).