What type of lease do you need for a new retail business?

Starting a new business is an exciting time. Often entrepreneurs, young and less young, are driven by the excitement of it all as well as a little bit of fear. That said, when it comes to signing the lease for the shop or premises that your new business will operate from it is important to understand your rights and the obligations of your landlord-to-be.

Importantly, not all leases are equal. As a general rule if:

  1. your business is one that wholly or predominantly involves the sale of goods by retail; and
  2. the shop or premises that you are to lease is less than 1,000 m2;

then the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (“the Act”) may apply to your lease. The purpose of the Act is to protect small business owners who own/run retail shops against oppressive or unfair conduct of landlords who are often in a much greater bargaining position then would be tenants. Among other things, the Act achieves this by giving tenants statutory rights and imposing certain obligations on landlords.

For instance, the Act prescribes that:

Prior to, or shortly after, signing a retail shop lease the landlord must provide you with;

  • A tenant guide – this explains your rights under the Act; and
  • A disclosure statement – this sets out the key terms of your lease (i.e. rent, fit-out of premises, payment of electricity/water etc).

If you do not receive these documents, you may have a right to terminate the lease.

  • As a tenant you have a right to a minimum 5-year lease term (this can be a combination of the initial term of the lease and any options to renew).
  • The landlord must give you written notice of the expiry date for any option/s to renew the lease. You must receive this notice between 6 and 12 months before the expiry date. If the landlord fails to give you this notice, the option expiry date may be extended.
  • In order for the landlord to recover operating expenses (sometimes referred to as ‘outgoings’, which can include rates, taxes, electricity and water consumption etc) from you, the landlord must provide you with:
    • An annual estimate of expenditure for each operating expense; and
    • An audited operating expenses statement.

If you are not provided with these documents, then a landlord cannot require you to pay operating expenses.

The above provides a snapshot of some of the more important functions of the Act and is in no way exhaustive.

If you are considering starting a brick and mortar store, or are already operating under a retail shop lease but are unsure of your position, we recommend that you obtain legal advice tailored to your circumstances. Being fully aware of your rights and the obligations of your landlord is important and can often become lost in the excitement of starting your business. Contact us today for an appointment to meet with one of our experienced commercial and property lawyers to get the peace of mind you need moving forward.

Subject to change

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