What are the rights of commercial tenants in Australia?

September 4, 2019 | Commercial Real Estate

To understand the legal rights of commercial tenants who lease space in Australia, you’ll first need to understand what a commercial lease is, as well as the differences between residential and commercial property. 

This is because each property category has its own unique set of laws that influence tenant rights. What’s more, the protections offered to residential and commercial tenants are quite different. 

What is a commercial lease?

A commercial lease is defined as a contract between a landlord and a business for the rental of an office, industrial or retail property. 

Many businesses will choose to lease commercial property instead of buying. This saves them from investing large sums of capital and tying up cash flow in bricks and mortar. 

Differences between residential and commercial tenants rights

When it comes to residential property, such as rental houses or apartments, there are various laws and regulations designed to protect tenants. 

This is not the case with commercial real estate because policymakers assume business people have higher commercial acumen.  And, therefore, a better grasp of what should and should not be included in a commercial property agreement. 

Commercial property can also vary a lot in terms of what regulations and laws are in place. For instance, retail shops tend to be heavily regulated whilst other commercial spaces, such as office space or general industrial units, do not attract the same level of control. The exception to this rule is when an industrial site is used by an industry that is heavily regulated or licensed and health and safety laws are in place. 

Compared to residential agreements, commercial leasing agreements also tend to be more complex and need more consideration because they vary a lot from lease to lease. This is partly because there is more room for negotiation on the terms, requirements and rules in a commercial lease, without the same level of laws and protection provided in residential cases. 

It is therefore important to understand the lease terms and the rights of tenants and landlords for each individual lease agreement.

Local Laws

The other thing that influences tenant rights for all types of property is the local laws. Here, each country, state and territory has its own legislation that regulates how commercial tenants must be treated. 

For instance, if you’re leasing a retail premises, your rights are set out under both state-specific legislation and your lease. But, of course, what is written in the lease must, at a minimum, meet the local rules and legislation. 

For example, in New South Wales, retail leases are governed by the Retail Leases Act 1994. There are also a few other acts that affect the creation of commercial leases including the Conveyancing Act 1919 and the Real Property Act 1900. This means landlords leasing retail spaces must abide by these laws when drafting leasing contracts.  

Tenant’s rights contained within the Retail Leases Act 1994 include the right: 

  • to request a copy of the lease during the lease negotiation stage 
  • to be provided with a retail tenancy guide 
  • to receive a disclosure statement 
  • not to pay undisclosed contributions under the lease

The legislation also provides a standard set of terms for each retail shop lease and defines who pays for the cost of preparing the retail shop lease.

Commercial leases are less regulated than retail leases, with most details agreed between tenant and landlord. 

Commercial Leases

Potential issues in commercial leases 

You should always be aware of a few key clauses in the commercial lease. These include: 

  • Renewal clause: Be sure to check that there is an option to renew the lease after your current term expires. Without this option, there is no guarantee that you’ll be allowed to continue operating in the premises past your initial lease term.
  • Rent clause: It’s important to check if a ‘ratchet clause’ has been inserted to prevent the rent you pay going down during the market rent review process. These types of clauses are illegal for retail contracts but they are legal for other types of commercial property leases. 
  • Mortgage: If the commercial property you are leasing has a mortgage you need to check that the lender who provided the mortgage has agreed to lease the property to you. Without this approval, there is a risk the lease could be terminated if the landlord doesn’t pay the mortgage. 
  • Refurbishment clause: This clause could allow the landlord to refurbish the premises whilst you are operating there, disrupting your lease and day-to-day business operations. 

Tips for negotiating your commercial lease 

Undertake a space survey at the start of your lease 

To ensure the area listed in the commercial space description is the size stated, it’s worth undertaking your own space survey to get an accurate measurement. This is especially important because you will be paying your rent per sqm. What’s more, commercial leases usually run over a long period of time, so getting this correct at lease commencement is worthwhile. 

Everything is negotiable 

Almost everything in a commercial lease is up for negotiation. But if you are not experienced in negotiating commercial property contracts it can be difficult to know where to begin or what aspects are the most important to negotiate on. When you consider that there are over 40 clauses to be negotiated (including rents, incentives and maintenance) in the average commercial lease it pays to have a professional on your side. 

About Tenant CS

Looking for expert advice on negotiating your next commercial lease, sourcing the perfect space to suit your business needs, and/or negotiating the best commercial lease terms on your behalf? That’s what we do best!

Tenant CS are experts in commercial leasing and level the playing field when it comes to landlord negotiations. We always put you, the tenant, first and will represent you up to and beyond the handover date. Contact our team today to see how we can help you!

 

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The Author

Johanna Pudlarz joined Tenant CS in 2014 to support the Australian tenant representation Sydney team. Previously working for CBRE (Paris and Kuala Lumpur) and Colliers (Mumbai), Johanna is an adaptable problem solver with a strong work ethic.

Johanna currently works as a Senior Consultant in the Sydney office and has a Masters in Finance from Ipag Paris Business School (France).

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