Commercial vs Retail Leases
Defining a ‘Commercial’ lease & what makes it different from Retail?
Whether you’re a Landlord or Tenant, understanding the difference between commercial and retail leases is pretty important; whilst the rules are similar, they are also quite different regarding the obligations from the Tenant. Let’s break it down in simpler terms:
What is the difference?
A retail lease is used where there is a sale of goods or services often located in a shopping centres, strips of shops, medical, or office space. Think of businesses dealing face-to-face with the public.
A commercial lease is used when a Tenant’s usage is not for direct access to the public. Think warehouses, industrial purposes, manufacturing, or admin-only office spaces.
What are the Rules?
For retail leases, there’s the Retail Leases Act (VIC) 2003 which is super clear about each party’s obligations under the Lease. As they say: “the rules and the rules, and the facts are the facts”.
However, there is no specific rulebook for commercial leases. They can vary a lot from one lease to another depending on terms and certain obligations that are under the RLA (such as reimbursing a Landlord for Land Tax or Management Fees) don’t necessarily apply.
Disclosure of Information
A retail lease requires a disclosure statement. Landlords need to disclose any information about a property (to the best of their ability) that would impact a Tenant’s decision to accept/sign a retail lease. Are there any restrictions on the premises? What are the estimated outgoings? Are there going to be any works surrounding the property that may impact a Tenant’s business (like all those wonderful level crossing removals).
*To clarify, during the commercial leasing process at Modo we do disclose all outgoing costs as a part of our marketing and these are included within a signed HOA prior to a lease being written. While there is no legal obligation to do so, it’s an important step in maintaining a good Tenant/Landlord relationship.
So what happens if a Landlord insists on a commercial lease but the Tenant’s usage is for retail?
A 2017 Supreme Court decision provided clarity on this matter. The case involved a dispute over land tax and outgoings which exceeded $160,000. Despite initial classification as commercial by VCAT, the Supreme Court ruled it a retail lease, affording the tenant protection under the Retail Leases Act (Vic) 2003.
(This can be avoided by being super clear about approved tenant usage in a lease. Here’s a blog post I’ve written earlier about this: The Importance of Usage in a Commercial Retail Lease)
In the end, knowing if your lease is commercial or retail in Victoria is super important. It can save a lot of headaches down the road and keep things fair for everyone. If you’re ever unsure, getting some legal advice is always a good idea.
