Does a tenant have to pay GST under the lease?

If a landlord is registered for GST then GST is payable on rent and outgoings. However, often there can be confusion regarding whether a lease is inclusive of exclusive of GST. It is therefore important that a lease specifies whether GST is inclusive or exclusive.

It should be noted that the landlord's disclosure statement for new leases (Schedules 1 and 2) makes provision for the landlord to outline whether GST is inclusive or exclusive, so it should be clear to the tenant what the situation is for the lease.

More information about how GST applies to outgoings for retail leases can be found on the Australian Taxation Office (ATO)  website or by contacting the ATO on 13 28 66.

 

What happens if a tenant receives a notice of default from the landlord?

If a landlord deems that a tenant has breached the lease, the landlord may issue a notice of default to the tenant. Default notices are often given to tenants for non-payment of rent. The process for issuing a notice of default will usually be what is outlined in the lease, i.e. the lease may state that if a tenant is behind in rent, the landlord may issue a breach notice to the tenant giving the tenant 14 days (or another time period reflected in the lease) to remedy the breach, otherwise the landlord may re-enter the premises.

Relevant legislation is Section 146 of the Property Law Act 1958 which covers restrictions and relief against forfeiture of leases and under-leases.

If a tenant has concerns that the landlord may re-enter the premise, the matter can be referred to VCAT for an urgent injunction.

 

What happens at the end of a lease?

If no option exists, the landlord must notify the tenant in writing within 6-12 months of lease expiry whether the landlord will offer a lease renewal or not, and if so, the terms of any renewal.

  • If an option exists, the landlord must notify the tenant of the last date the tenant can exercise the option, 6-12 months prior to that date.
  • An option may not be exercisable by the tenant if the tenant has not remedied any notified lease default or has persistently defaulted throughout the lease term.
  • If an option is exercised or the lease is to be renewed, the landlord must provide a disclosure statement at least 21 days prior to the end of the lease.
  • The landlord must return the security deposit plus interest as soon as practicable after the lease ends provided the tenant has performed all of its obligations under the lease.

See Options and Renewals and Security Deposits for more information.

What happens during a lease?

During the term of a lease:

  • If the lease provides for a rent review, it must state when the review is to take place, and the basis on which the review will be made.
  • A lease cannot prevent the reduction of the rent when rent is reviewed or adjusted.
  • A tenant is only liable to pay outgoings specified in the estimate of outgoings and the lease.
  • The landlord must provide estimates of outgoings and statements of outgoings during the course of the lease.
  • Capital costs relating to the premises are not recoverable from the tenant.
  • Land tax is not recoverable from the tenant.
  • The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the lease was entered into the structure and fixtures, plant and equipment; and appliances, fittings and fixtures relating to specified services.
  • The tenant may arrange for urgent repairs, subject to complying with prescribed procedures.
  • The landlord must notify the tenant in writing at least 60 days prior to any proposed alterations or refurbishments that may affect the tenant’s business. The tenant may be entitled to compensation.
  • A landlord may be liable to pay a tenant compensation for loss or damage resulting from the landlord’s actions or in-actions affecting the tenant’s trading at the retail premises.

See the Retail Tenants and Landlords section for more information.

What happens if I wish to sell the business?

If you are selling the business and assigning the lease:

  • A landlord is only entitled to withhold consent to the assignment of a lease in certain, limited circumstances.
  • An assignment of a lease is taken as a continuation of that lease.
  • A landlord can recover from the tenant reasonable legal and other expenses incurred in connection with an assignment (or sublease).

See Assigning a retail premises lease for more information.

What should I be aware of before entering a lease?

Before entering into any contractual leasing arrangement, you should understand your rights, responsibilities and expectations. If you are unsure, seek legal advice. Be aware, too, of the following:

  • A copy of the lease must be provided to the tenant at negotiation stage, together with a copy of the VSBC Information Brochure.
  • A Disclosure Statement must be given to the tenant at least seven days before entering into the lease.
  • A lease must be in writing and signed by all the parties to it, and the landlord must provide the tenant a copy signed by both parties.
  • The landlord cannot pass onto the tenant the cost of preparing the lease or disclosure statement.
  • A lease term under the Retail Leases Act 2003 (including any options) must be at least five years, although a tenant may request a shorter term.
  • However, the Act (other than the dispute resolution provision) does not apply to a lease with a term of less than one year and where the tenant has not been in continuous occupancy for more than one year.
  • Money paid as a security deposit must be held by the landlord in an interest bearing account. Interest forms part of the security deposit.

See Retail Tenants and Landlords section for more information.

What happens if my retail leasing dispute is not resolved at mediation?

For disputes under the Retail Leases Act 2003, if mediation at the VSBC is unable to resolve the dispute, a certificate can be issued to enable a party to proceed to the Victorian Civil and Administrative Tribunal (VCAT) for a determination to be made.

The VSBC can also certify that a party has refused to participate in the mediation or alternative dispute resolution process and this may have cost implications at VCAT for the party that refuses to participate.

Can a tenant be prevented from assigning a lease?

No, provided none of the limited grounds in section 60 of the Retail Leases Act 2003 exist on which a landlord may withhold consent to assignment.

Section 61 of the Act contains the procedure that a tenant must follow in order to obtain consent to assign the lease. The landlord has an obligation to act reasonably in consenting to a transfer of lease (section 144 of the Property Law Act).

See Assigning a retail premises lease for more information.

Does a ‘repainting’ clause mean the tenant has to repaint to a new condition even though the condition was poor to start with?

Yes, if this is what the tenant has agreed to in the lease. It is very important that tenants check a lease’s ‘make good’ and maintenance requirements. Wherever possible, tenants and landlords should agree on a Condition Report at the start of a lease to avoid future disputes.

Does the Retail Leases Act 2003 apply to offices?

This depends on the use of the premises under the terms of the lease. If the use is wholly or predominantly for the retail provision of services and the premises are wholly located within the ground, first and second storey, then yes.

A service business on the third storey (where there is a ground, first and second storey) and above is not covered by the Act, though the dispute resolution provisions do apply (Part 10 of the Act).

See VSBC Guidelines 'What are "retail premises"? for more information.

Do all outgoings have to be listed in a commercial lease to enable the tenant to be charged?

Yes, this is provided for under section 39 of the Retail Leases Act 2003.

See Outgoings for more information.

When does a variation of a lease become a new lease?

This depends on the variation involved. In certain circumstances a variation can constitute a new lease, but it would depend on the variation in question.

A variation of lease occurs when a substantial change to the original lease is made.

Many variations will not necessarily cause a surrender and re-grant of a lease. If it is not the intention of the parties to create a new lease, legal advice should be obtained before a lease is varied, especially if such variations are to be extensive.

Note: If a new retail lease is created via a variation, the landlord must provide the tenant with a new Disclosure Statement.

Can a landlord force a tenant to move premises?

The landlord can only force a tenant to move premises if a there is a relocation clause in the lease.

If the lease does not contain a relocation clause, the landlord cannot move the tenant.

If the lease does contain a relocation clause, it should specify the conditions under which the landlord can relocate the tenant.

Under the Retail Leases Act 2003 certain conditions for relocation apply to the lease. For example:

  • the new premises must be ‘reasonably comparable’ to the existing premises;
  • the rent for the new premises is to be generally the same as for the existing premises;
  • the landlord must pay the tenant's reasonable costs of the relocation.

In addition to the lease, the Act also provides that the Disclosure Statement (provided by the landlord to the tenant) must specify whether the lease contains a relocation clause and if the landlord has any plans for the building in which the premises are located during the term of the lease which may invoke the relocation clause.

Section 55 of the Act covers the issue of relocation of the tenant's business.

Under what circumstances can a tenant claim compensation from a landlord?

Under the Retail Leases Act 2003, a tenant can claim reasonable compensation for interference from a landlord under the following circumstances:

  • if a landlord inhibits the tenant's access to the premises;
  • unreasonably taking action that causes significant disruption to the tenant's trading at the premises;
  • failing to rectify as soon as is practical any breakdown of plant or equipment that is not under the tenant's care or maintenance.

Furthermore, Section 54 of the Act covers the issue of relocation of the tenant's business. Disputes over compensation can be referred to the VSBC for dispute resolution.

Who determines the rent for a retail lease?

For new retail premises leases, the rent will be negotiated and decided upon by the landlord and prospective tenant.

For existing leases, the rent will be determined by the rent review provisions in the lease and specifications in the lease.

Rental increases may occur throughout the lease – if the lease provides for it – by a fixed percentage or amount, or by a certain figure determined by the consumer price index (CPI).

If renewing a lease, the lease usually provides for a market review of the rent to determine the value. In this case a range of factors are considered, for example, the location, size and condition of the premises. If the parties cannot agree on the rental for the new term, the parties may require a valuer to determine the rent. If the parties cannot agree on the valuer's appointment, the VSBC can assist parties in appointing a Specialist Retail Valuer.

What should a tenant do if the landlord won’t maintain the premises?

Under Section 52 of the Retail Leases Act 2003 the landlord is obliged to maintain the premises in a condition consistent with the condition of the premises at the start of the lease, and this overrides any lease provisions to the contrary.

It is the landlord’s responsibility to repair the premises so that the tenant can carry on their business uninterrupted.

See Repairs and Maintenance for more information.

 

What if a tenant leaves the premises without notifying the landlord?

A retail lease is a legal document and is binding to all parties who sign it.

If a tenant must still fulfil obligations under the lease, but has left the premises without notifying the landlord and is no longer paying rent, then the landlord has:

  • a legal right to re-enter and terminate the lease on the grounds that the tenant has abandoned the premises;
  • the right to take action against the tenant to recover any money lost because of the tenant's departure.

Contact the VSBC to discuss your options. We may suggest taking part in mediation with the tenant, or obtaining an order from the Victorian Civil and Administrative Tribunal (VCAT) that the tenant pay the outstanding money.

What if a tenant wants to get out of a retail lease?

A retail lease is a legally binding document and therefore both parties must agree to end a lease.

If the landlord does not wish to end the lease, the tenant may be responsible for the landlord's reasonable out-of-pocket expenses in finding a new tenant.

The actual amount the tenant is responsible for is a matter of negotiation between the parties, but the costs may include rent until the premises are re-let and the agent's re-letting fees.

What if a landlord won't provide a tenant with a copy of the lease?

Under the Retail Leases Act 2003 a landlord must give the tenant a copy of the lease signed by both parties within 28 days of the date of the tenant giving the signed lease to the landlord.

If this does not happen with the 28-day timeframe, a tenant may give the landlord notice to terminate the lease.

See the Retail Leases Act 2003 Information Brochure for more information.

What can a tenant do if a landlord or real estate agent won’t return the security deposit?

A landlord or real estate agent must return a tenant’s bond if the tenant has performed all his/her obligations under the lease. This usually happens once the tenant vacates the premises.

Subject to this, the landlord or real estate agent should return the bond as soon as possible after the lease ends.

If the bond (and any accrued interest) is not returned, or only part of the amount has been returned and the tenant feels entitled to receive the bond back in full, the matter can be referred to the VSBC for dispute resolution.

See Security deposits for more information.

Who is responsible for paying land tax under the Retail Leases Act 2003?

Section 50 of the Retail Leases Act 2003 states that a landlord cannot pass on land tax to a tenant.

What are retail premises?

Retail premises are more than just ‘shops’. The Retail Leases Act 2003 also covers premises used for consumer, business, trade services or hire of goods (for example, estate agents, doctors and mechanics). This excludes any area intended for use as a residence.

Premises that do not constitute retail premises are defined in Ministerial Determinations.

See VSBC Guidelines 'What are "retail premises"? for more information.

What is the coverage of the Retail Leases Act 2003?

Retail leases legislation applies to premises that are used wholly or predominantly for the sale or hire of goods by retail or the retail provision of services, and where the occupancy cost is less than $1 million per year (the occupancy cost of retail premises is the combined cost of rent and outgoings).

Retail leases legislation does not apply to:

  • tenants in the business of wholesaling, manufacturing or storage;
  • tenants that are listed corporations or subsidiaries of listed corporations; leases for a term of less than one year unless consecutively renewed;
  • premises or businesses that are excluded under Ministerial Determinations.

See VSBC Guidelines 'What are "retail premises"? for more information.

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