Retail and Commercial Leases in South Australia: When Does the Act Apply and What Are the Consequences?

Retail and Commercial Leases Act

The Retail and Commercial Leases Act is the primary legislative instrument regulating many retail and commercial leasing arrangements in South Australia.

The Act operates to the benefit of the tenant/lessee, by (among other things):

1. entitling tenants to up front disclosure from landlords;
2. limiting the entitlement of landlords to recover certain outgoings from tenants (most notably, land tax);
3. conferring a minimum lease term;
4. restraining the recovery of costs of works of a capital or structural nature; and
5. regulating the circumstances in which a landlord may terminate a lease for demolition or substantial works.

It is generally to the benefit of the tenant that the Act apply.

Likewise, it is generally to the benefit of the landlord that the Act not apply.

Applicability of Act

The Act applies to “retail shop leases”.

That is, a lease of business premises at which goods are sold or services are provided to the public, or the public is invited to negotiate for the supply of services.

The Act may therefore apply to premises that would not ordinarily be described as a traditional “shop”.

Certain leases are explicitly excluded from the operation of the Act.

These include:

1. leases with rent exceeding the prescribed threshold (currently $420,000.00 per annum plus GST); and
2. leases to certain excluded entities, including public companies, or subsidiaries of public companies.

Permitted use

Commercial leases generally contain restrictions on the “permitted use” of the premises, being a description of the business, activity or purpose for which the tenant is authorised to occupy and use the premises.

As such, where the permitted use does not involve the sale of goods or services to the public, the premises may fall outside the definition of a “retail shop”, with the result that the Act may not apply.

Act overrides lease

It is important to note that  where the Act applies, the parties cannot simply agree that it will not apply.

To the extent that a provision of the lease is inconsistent with the Act, that provision will be superseded by the Act and may be void to the extent of the inconsistency.

This means that, even where the parties have expressly agreed to a particular commercial arrangement, the statutory protections conferred by the Act may still prevail.

Practical consequences of applicability of Act

If the Act applies, the landlord must comply with the Act before the lease is entered into.

This includes providing the tenant with:

1. a draft of the lease;
2. the Retail and Commercial Leasing Guide; and
3. a disclosure statement that accurately records the key commercial terms of the lease, including the rent, term, permitted use, outgoings and any renewal rights.

If the Lessor fails to comply with the Act, consequences may include penalties, compensation, repayment of moneys paid, or orders varying or avoiding the lease.

Conclusion

Whether you are preparing, reviewing, negotiating or enforcing a lease, our property team can provide pragmatic and commercial advice tailored to your circumstances.