For landlords, retail leases are income-producing arrangements that must operate within the framework of the Retail Leases Act 2003 (Vic) (“the Act”). In addition to commercial considerations, landlords are subject to statutory obligations that regulate both entry into and administration of retail leases.
Understanding these issues assists in balancing income protection with regulatory compliance.
- Disclosure and Statutory Compliance
Landlords must provide a copy of the proposed lease and a disclosure statement at least 14 days before the lease is entered into.
The Act also restricts certain charges (including preparation costs) and regulates lease provisions. Including prohibited terms can have consequences, such as allowing tenants to terminate or seek compensation.
- Rent Structure and Reviews
The structure of rent is central to the commercial viability of a retail asset. Leases commonly address:
- Base rent
- Annual increases (Consumer Price Index (CPI) or fixed percentage)
- Market rent reviews
- Recovery of outgoings
Clear drafting reduces uncertainty and the likelihood of disputes.
- Security and Risk Allocation
Landlord’s commonly use security to manage risk and may include:
- Cash bonds (to be held in accordance with the Act)
- Bank guarantees
- Personal guarantees
The nature and quantum of security often reflect the financial profile of the tenant and the length of the lease.
- Default and Enforcement
Retail leases generally contain provisions addressing arrears, breaches and termination rights. However, enforcement action must comply with statutory requirements and principles of procedural fairness.
Improper termination or enforcement may expose landlords to liability.
- Redevelopment Flexibility
For landlords holding long-term assets, redevelopment flexibility may be important. Demolition and relocation clauses should be carefully drafted to preserve redevelopment options while complying with statutory notice requirements.
- Tenant Selection
Although often viewed as a commercial decision rather than a legal one, tenant selection can materially impact the stability of income and long-term asset value. Financial capacity and business suitability are frequently considered prior to entering into a lease.
Retail leasing involves both commercial strategy and statutory compliance. A properly structured lease assists in maintaining regular income while reducing exposure to dispute.
The information provided in this article is general in nature, if you have a retail lease and require specific advice, please contact our office and one of our business lawyers will be able to assist you.
