Q: In order to start a cafe, I decided to rent a store. What should I keep in mind when entering into a lease contract? (A man in their 30s, working at a restaurant) A: For this time, we will focus on the law in relation to retail lease and explain the NSW state law "Retail Lease Act". For reference, similar laws exist in other states as well. Generally, a lease contract is drafted in favour of the landlord. The Retail Lease Act was created and has been developed in the context of where there has been constant disputes between landlord and leasee, which led to various social issues. Accordingly, the Retail Lease Act was enacted to bring fairness to these retail store leases. Disclosure Statement Before concluding a lease contract, the landlord is required to submit a document called "Disclosure Statement" to the leasee for the purpose of communicating all important matters related to the lease of the stop. If the Disclosure Statement is incomplete or contains false information, the leasee may later be entitled to terminate the lease, and the landlord may be fined. The contents of the Disclosure Statement include: Rent and rent review method; Details of maintenance expenses and the percentage of the burden; Details of equipment or facilities provided by the landlord Interior work performed by the landlord and the portion of payment by the lease Details of store structure required by the landlord and other payments paid by the lease, etc. The Disclosure Statement should be given to the lease at least 7 days before the lease contract is executed. Also, after receiving the Disclosure Statement, the leasee is required to notify the landlord and to return it within 7 days. In the Disclosure Statement, the leasee must confirms that "the terms of this lease will be fulfilled." It is important to note that if the parties orally agree on terms of the lease, such terms should be incorporated into the Disclosure Statement. Otherwise, the parties may not be able to make such oral claims at a later date. Payment of contract costs In the case of a typical commercial lease (such as an office), it is often found that tenants are responsible for all legal costs of the owner involved in entering into a lease agreement. However, in the case of retail lease, it is basically prohibited to impose such costs on the leasee. Similarly, it is forbidden to ask the leasee to pay for "Key Money" (equivalent to "reward" in Japan, which is not refundable unlike bonds and security deposits). If you live outside of NSW, please check with lawyers registered in your state about each state's Retail Lease Act.
Q: As I opened a café, I leased out a store. What should I keep in mind when entering into a lease contract? (Male in their 30s working at a restaurant) A: The most important thing when running a café is leasing a store. You must be aware of basic clauses such as: lease period, rent, rent review conditions, bank guarantee, burden of utilities expenses, business days and business hours and the obligation to repaid equipment and fixtures in stores. However, outside of those mentioned above there are more and there are lease agreements which may be favourable to the Landlord. The best time to negotiate various contractual terms with the Landlord is before the draft lease is issued. Following from this, it is best to consult with a lawyer or a specialist and receive advice and then negotiate with the Landlord on the basic conditions. Checklist before finalising the Lease Confirm that there are no registration problems with the owner and property Check if the permission to run a café has been issued by a government body Have items such as toilets, air conditioners, refrigerators, stoves, grease traps etc., inspected for any problems. When receiving equipment from the previous owner, confirm the ownership (whether it was leased or mortgaged) When renovating a store, ensure prior agreement is made with the Landlord If purchasing an existing business, it is best to complete the above research, together with your sales in order to determine whether the purchase price is reasonable. Bank Guarantee When renting a commercial property, the landlord will require a few months’ worth of bank guarantees, however there are a few exceptions. A bank guarantee is an agreement to pay the Landlord a mutually agreed rent on behalf of the Tenant, should the Tenant become insolvent. Banks usually require a fixed amount of deposit from the Tenant, as collateral when issuing a guarantee. Therefore, during the lease period, the deposit is frozen. Lease Period After the lease expires, it is up to the Landlord to decide whether to renew the lease and decide what the rent price will be. In the case of a thriving business, there is a chance that the Landlord may set a higher rent when signing a new Lease agreement. Additionally, a third party may offer a larger rent price to the Landlord in order to take over the business. In this case, the rent provided by the third party may become the new rent amount. This does not mean that the lease period will be long. Some tenants are relieved that "the lease period is over, and the store is to be closed". In this regard, there are many contracts in which the borrower is granted an option to renew the lease term. Lease contracts vary widely, so various things need to be considered. As each business need differs, we recommend that you consult a lawyer before signing a Lease contract.
1. Minimum Term (Section 16) Minimum 5-year term is removed from the Act. 2. Registration of Retail Lease (Section 16) Leases for a term of more than 3 years must be lodged for registration within 3 months after the signed Lease is returned to the Landlord 3. Bank Guarantee (Section 16BA) Bank Guarantee must returned to the Tenant within 2 months after Tenant completes obligations under the Lease. 4. Mortgage Consent Fees (Section 3) The Act will be amended to specifically prohibit a Landlord from charging a Tenant expenses incurred in connection with obtaining the consent of a mortgage. 5. Demolition (Section 35) Clarifies that the protection to Tenants afforded by the Act applies to proposed demolition of the building or any part of the building. The Lease cannot be terminated by the Landlord unless the proposed demolition cannot be carried out practicably without vacant possession of the shop (Section 35(1)(a1)). Previously this position was reflected in the definition of demolition. 6. Lessor’s Disclosure Statement (Section 11) Right to compensation for lessee: If a Landlord fails to serve a complete and accurate Lessor’s Disclose Statement 7 days before the Lease is entered into, the Tenant now has the right to terminate the Lease within the first 6 months and claim compensation including the cost of its fit-out (Section 11(2A)). Disclosure of outgoings: The Tenant is now not liable to pay any outgoings unless the liability was disclosed in the Lessor’s Disclosure Statement (Section 12A). 7. Consent to Assignment (Section 41) Clarifies that the Landlord must provide an updated Lessor’s Disclosure Statement within 14 days of request (Section 41(c)). If the Landlord fails to do so, whereas previously this requirement could be ignored, now the Tenant must provide a Lessor’s Disclosure Statement completed by the Tenant to the best of the Tenant’s knowledge (but with information as to current outgoings) (Section 41(e)). A Landlord will not be able to withhold consent to assignment if a Lease was awarded by public tender and the proposed assignee fails to meet any criteria of the tender (Section 39). 8. Online Transactions Revenue from online transactions are not to be included in turnover for the purposes of determination of rent, except for transactions where goods or services are delivered or provided from or at the retail shop or where the transaction takes place while the customer is in the retail shop (section 20). The Bill will prevent the Tenant from having to provide the Landlord with information about online transactions, except for transactions where goods or services are delivered or provided from the retail premises or where the transaction takes place while the customer is in the shop (section 47). Note “online transaction” is not defined in the Bill. 9. NCAT Jurisdiction (Section 73) NCAT now has jurisdiction in relation to claims of up to $750,000.00. 10. Excluded Uses (Schedule 1A) The Bill clarifies that Retail Leases Act does not cover the following: ATMs Car parking (not being car parking provided as part of the business of a car park) Children’s ride machine Communication towers Digital display screens Display of signage (not including the use of premises from which signage is sold) Internet booth (not being an internet cafe or similar use) Private post boxes Public tables and seating Public telephone Renewable energy generation Renewable energy storage batteries Self-storage units Storage of goods for use or sale in a retail shop (not including storage on premises from which goods are sold) Storage lockers Vending machine 11. Exclusion of Market Stalls (Section 6B) Clarification that the Act does not apply to market stalls unless the market is a permanent retail market. 12. Copy of Lease Term The Tenant must be provided with an executed copy of the Lease within 3 months after the Lease is returned to the Landlord or their lawyer/agent following execution. 13. Agreement for Lease (Section 3B) The Act clarifies that the Act applies to an agreement to lease in the same way as to a Lease. 14. Act Applies to Both Proposed Tenants and Landlords (Section 3(2)) Where the Act refers to the rights and obligations of a Landlord or Tenant, it also applies to a provision regarding a proposed retail shop lease, including the proposed Tenants and proposed Landlords. 15. Retail Bond An “online retail bond service” may now be available. 16. Police Checks If the Landlord wishes to require police or security checks and clearances for persons employed or other persons working in the shop, they must include a provision for it in the Lease.