Guide for prospective tenants entering into a retail shop lease in Queensland - JHK Legal Commercial Lawyers

10 June 2022

Guide for prospective tenants entering into a retail shop lease in Queensland

Written By: Christel Goh, Associate

Leases for retail businesses in Queensland are governed by the Retail Shop Leases Act 1994 (Qld) (‘RSL Act’).

The RSL Act seeks to address market power imbalances that small retail tenants might face when dealing with landlords by setting ground rules for retail shop leasing in Queensland. For example, the provisions of the RSL Act require that landlords must:

  • make certain disclosures about a retail shop lease before a tenant signs or becomes bound to it;
  • not provide for “ratchet” clauses in any retail shop lease (i.e. where rents can only go up);
  • not provide for the “higher of” rent review mechanisms for a lease year in a retail shop lease;
  • provide details of outgoings and changes to them;
  • give certain notices regarding options and decisions as to whether or not to grant new leases;
  • not act unconscionably;
  • abide by the dispute resolution mechanisms under the RSL Act; and
  • provide compensation for changes to common areas and interruptions to tenants.

First things first, is your lease a retail shop lease?

A lease will be subject to the RSL Act if is it a lease of a retail shop[1] or premises situated in a retail shopping centre.[2]

Generally speaking, if you intend to lease premises solely or predominantly for selling goods or services to customers or those premises are within a “retail shopping centre” (e.g. a shopping mall, shopping court or shopping arcade), you would very likely be entering into a retail shop lease.

Examples of retail businesses are cafés, restaurants, snack bars, fashion boutiques, florists, butcher shops, fishmongers, furniture shops, department stores, party supplies shops, service stations, pet, pet supplies and pet grooming shops, barbers and beauty salons, newsagencies, party supplies shops, health and vitamin product shops, grocery supermarkets, convenience stores, toy shops and jewellery stores.[3]

Notwithstanding the use, leases of certain premises do not constitute a retail shop leases and to name a few, include:

  1. premises with a floor area greater than 1,000m2;[4]
  2. premises used wholly or predominantly by the Landlord’s employee or agent to conduct the Landlord’s business;[5]
  3. stalls at a flea market, including an arts and crafts market; or[6]
  4. premises located in a retail shopping centre but which are not used for carrying on a retail business and which are on located on  a level or in a building which, on that level or in that building, 25% or less of the total lettable are used for retail purposes.[7]

What are the things a tenant should consider before entering a lease?

Before entering into a retail shop lease a tenant ought consider:

  • The suitability of the premises for your business – location and size of the premises will be relevant factors and issues like town planning and approvals will be the tenant’s responsibility;
  • The term of lease and option to renew lease – consider the start and expiry date of the lease and whether you want the option to extend the lease after the lease expires – the lessor isn’t obliged to grant a new lease so security of tenure is important;
  • Rent, rent review, rent incentive – consider rent affordability and frequency of the rent payment, as well as whether the landlord offer any incentives such as rent concession or fitout contribution;
  • Outgoings – know what outgoings are payable on top of the rent and check if services such as water, electricity and air-conditioning are separately metered and charged or apportioned with other tenants;
  • Trading hours – opening hours may be imposed on tenants and tenants may not be able to close shop continuously for a certain period of time;
  • Landlord’s works – landlords will generally reserve the right to redevelop or deal with common areas;
  • Tenant’s works during the term – some landlords may require that the tenant renovate or redecorate the premises at set times, for example re-carpeting.  A tenant ought consider the costs and trading impacts of that before the lease starts;
  • Signage – unless the landlord agrees to grant it, tenants usually have no right to signage outside their premises.  A tenant ought negotiate this at the outset and determine any requirements the landlord has regarding signage;
  • Maintenance obligations – consider what the tenant and landlord will be responsible for in terms of maintenance (e.g. who is responsible if an air conditioner stops working or the roof leaks?
  • Car park – again unless the landlord agrees to grant it, tenants will generally have no car parking rights to common areas.  If car parking spaces are required for a tenant’s use, this ought to be negotiated at the outset.

What must the Landlord provide before a tenant signs a retail lease?

At least seven days before the tenant enters into a retail shop lease (‘the Prescribed Disclosure Date’),[8] the landlord must provide the following lease documents to the tenant:[9]

  • A draft of the lease – this is prepared by the landlord or its solicitors for review by the tenant; and
  • A Lessor Disclosure Statement – there is a prescribed form (Form 7) published by the Queensland Government which the landlord completes to provide certain key preliminary disclosures such as the term of lease and option to renew, annual base rent, total estimated outgoings and tenant’s contribution, promotion and marketing costs, rent review, and exclusivity of tenant’s permitted use.  The form also provides details of the area of the premises and, if in a retail shopping centre, details of other tenants.  

If the above requirement is not met or the Lessor Disclosure Statement provided is defective,[10] a tenant may, in some circumstances, terminate the retail shop lease by giving written notice to a landlord within 6 months of entering into the lease and seek compensation from the landlord.[11] However, the landlord may ask the tenant to sign a waiver notice so that the landlord needs not give the Lessor Disclosure Statement within the Prescribed Disclosure Date.[12]

It is important to seek legal advice before granting or entering into a retail shop lease

The RSL Act requires that tenants get proper legal and financial advice regarding the lease before they enter into a retail shop lease. 

As for landlords, it is essential that they receive proper advice as to the operation of the RSL Act and to ensure that they and their leases comply with that RSL Act and the continuing obligations imposed on them.  Failing to do so can have significant consequence.

We encourage all landlords and tenants to reach out to us for advice regarding the operation of the RSL Act.  We will be happy to assist.

[1] Retail Shop Leases Act 1994 (Qld) s 5A(1).

[2] Retail Shop Leases Act 1994 (Qld) s 5B.

[3] Retail Shop Leases Regulation 2016 (Qld) Sch 1.

[4] Retail Shop Leases Act 1994 (Qld) s 5A(2)(a).

[5] Retail Shop Leases Act 1994 (Qld) s 5A(2)(c).

[6] Retail Shop Leases Act 1994 (Qld) s 5A(2)(e).

[7] Retail Shop Leases Act 1994 (Qld) s 5A(3).

[8] Retail Shop Leases Act 1994 (Qld) s 21B(1)(a).

[9] Retail Shop Leases Act 1994 (Qld) s 21B(1).

[10] Retail Shop Leases Act 1994 (Qld) s 21F(2).

[11] Retail Shop Leases Act 1994 (Qld) s 21F(1).

[12] Retail Shop Leases Act 1994 (Qld) s 21B(2).