Specialist Retail Valuer’s Guide: Understanding the Retail Leases Act in Sydney and Across Australia

If you’re a small retailer or lessor leasing a shop space, understanding the implications of the Retail Lease Act is crucial. This legislation varies from state to state, but it generally provides essential protections for lessees, particularly small businesses. In this article, our Specialist Retail Valuer delve into why the Retail Lease Act matters and whether it applies to your shop.

1. Specialist Retail Valuer’s Guide: State-specific Regulations

The applicability of the Retail Lease Act depends on the State where your shop is located. There are certain restrictions on the eligibility of the application of the Retail Leases Act in each State. Some of these are discussed below.

New South Wales (NSW):

1. Applies to all leases of ‘retail premises’ entered on or after 1 May 2003.
2. Covers retail shop leases entered or renewed before or after 28 October 1994.
3. Applies to leases entered or renewed after 1 July 2002, or variations made after that date, relating to retail shop leases entered into after 1 July 2004.
4. Does not apply to leases for a term of fewer than 6 months or greater than 25 years ( including options), leases for premises over 1000m² and certain uses are excluded from the Act https://legislation.nsw.gov.au/view/pdf/asmade/sl-2022-813.

Queensland (QLD):

1. Applies to retail premises leases with a lettable area not exceeding 1000m² entered on or after 28 October 1994.

Victoria (VIC):

1. Applies to leases with a lettable area not exceeding 1000m² entered into before 1 September 1998 if varied after that date.
2. Applies to leases where the rent exceeds the prescribed threshold of $1m per annum in rent or a Lessee that is listed entity, regardless of when the lease was entered into or renewed.

South Australia (SA):

1. Applies to retail premises leases entered after 30 June 1995.
2. Does not apply to leases for the carrying on of a service station business if the Competition and Consumer (Industry Codes – Oilcode) Regulation 2006 (Cth) applies.
3. Applies to leases where the rent exceeds the prescribed threshold of $400,000 per annum in rent or a Lessee that is listed entity, regardless of when the lease was entered into or renewed.

Western Australia (WA):

1. Applies to leases of retail premises entered into on or after 1 January 2013.
2. Does not apply to leases for a term of fewer than 6 months or leases entered by certain entities like ADIs, insurance companies, local councils, or the Crown.
3. Applies to leases with a lettable area not exceeding 1000m² but a Lessee that is listed entity, regardless of when the lease was entered into or renewed is excluded.

Tasmania (TAS),

1. Applies to leases of retail premises entered on or after 1 September 2018.
2. Does not apply to leases for a term of fewer than 6 months or leases entered by certain entities.
3. Applies to leases with a lettable area not exceeding 1000m² but a Lessee that is listed entity, regardless of when the lease was entered into or renewed is excluded.

Northern Territory (NT):

1. Applies to leases of retail premises entered on or after 1July 2004.
2. Does not apply to leases for a term of fewer than 6 months or leases entered by certain entities.
3. Applies to leases with a lettable area not exceeding 1000m² but a Lessee that is listed entity, regardless of when the lease was entered into or renewed is excluded.

Australian Capital Territory (ACT),

1. Applies to leases of retail premises entered on or after 1July 2002.
2. Does not apply to leases for a term of fewer than 6 months or leases entered by certain entities.
3. Applies to leases with a lettable area not exceeding 1000m² but a Lessee that is listed entity, regardless of when the lease was entered into or renewed is excluded.

These regulations outline the conditions under which the Retail Lease Act applies in each State, ensuring that small retailers receive protections under their lease agreements. It’s essential for retailers and lessors to understand these state-specific regulations to determine their rights and obligations under the law, as they override certain provisions in leases where they are in conflict.

2. Specialist Retail Valuer’s Guide: Protection for Small Retailers in relation to Market Rent Reviews

One of the main protections relates to market rent reviews for option leases and midterm market reviews. A summary of these is below:

1. Rents can fall below the current rent i.e. the market rent can fall;
2. Incentives are required to be taken into account;
3. The permitted use of the premises is to be taken into account;
4. Grossed up rents including outgoings are to be used for market rental comparison;
5. The lessee’s fitout and goodwill are to be excluded.

Understanding these protections is essential for retailers and landlords, as they negotiate lease agreements and navigate the complexities of the commercial real estate market, particularly in relation to market rent reviews.

Specialised rental valuations of retail, childcare, medical and aged care are complex and multi-faceted.  IPS Consultants is an independent consultancy and Specialist Retail Valuer in Sydney with more than 25 years of experience in this field and regularly provides complex analysis in these areas. Contact us today.