Signing a new lease for your business can be a significant milestone. Before signing on the dotted line, it’s important to know the difference between a commercial and a retail lease.
Whether you find it confusing or it’s unfamiliar territory, we’ve outlined some of the key differences, so you can make an informed decision.
What are commercial leases?
Commercial leases typically apply to a property like a warehouse, industrial site or office in a commercial building with no retail shops. The main distinction lies in the use of the premises. For example, will you buy and sell to the public from your business premise? If the answer’s ‘no’, then you’ll likely be signing a commercial lease over a retail lease.
The difference between a retail and a commercial lease gets confusing for businesses that provide services in a retail precinct, like a dentist or an accounting practice. If there’s any grey area, there’s a location test: a business will have a retail lease if the business is in a shopping centre.
If the same business is conducted in a commercial building where other commercial offices exist, the lease will be commercial in most cases.
What are retail leases?
A retail premise will be governed by retail legislation. It’s typically a lease of a business premise where the main activity is selling goods to the public. Shop premises with a retail lease are usually located in shopping centres.
But what exactly makes a shopping centre? Well, a shopping centre is a collection of five or more shops in a single precinct. The underlying assumption for a retail lease is that a tenant has less power than a property owner. In the case of a retail shop, a landlord is usually a corporate shopping centre owner.
Other things to be aware of for commercial and retail leases
No matter the lease, any retail or commercial lease will usually have conditions for:
- the payment of rent
- rent increases, and
- maintenance and repairs of the premises.
Each state also has exceptions for what will be considered a retail lease. For example, if:
- the size of the premises exceeds 1,000 square metres
- you have a shop in New South Wales operating inside a cinema or bowling alley
- the tenant is a listed corporation, or
- the lease you sign is for more than 25 years.
Despite the similarities, state-specific retail legislation governs retail leases and state-specific property, and conveyancing acts regulate commercial leases. Sound a bit confusing? That’s why having a legal advisor in your corner can make finding the right lease much easier.
Get to know legislation governing retail leases
Retail property owners and tenants must understand what’s allowed under retail legislation regarding lease terms. An understanding of the consequences of noncompliance with retail legislation is also essential.
In some cases, a retail tenant has a right to break a lease or receive compensation when a property owner fails to give proper disclosure or intimidates the tenant.
A good example of disclosure could be a landlord failing to notify you of proposed future works at a shopping centre and disruption to your trade. Intimidation may include a landlord who uses pressure or coercion to get you to make advance payments of rent not required under your lease terms.
In contrast, commercial leases are a bit looser and require careful consideration on the part of the tenant. Negotiation can help ensure lease terms aren’t too much of a burden for the tenant, or heavily favour the landlord.
Seek professional advice when signing a retail or commercial lease
At Lakis & Knight, we help small to medium-sized businesses make informed decisions about leases. Our personalised approach and fixed-fee service offering ensure you have complete transparency when signing a new lease or renewing an existing lease. If you’d like to speak further about your options for a lease, contact us to book your free, no-obligation discovery session.
