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Retail Shop Lease - Know the Process

December 5, 2017

 

 

Retail Shop Leases

 

Taking your business to the next level by leasing out a premise is an exciting, yet overwhelming time. A lease is a contract and by definition is binding, therefore it is important to make sure you understand every aspect of the lease before signing. When reviewing a lease, you must first determine whether it is a retail shop lease.

 

In Queensland, this is defined in the Retail Shop Leases Act 1994 as a lease of a retail shop which is either located in a retail shopping centre or used mostly for carrying out a retail business.  Often, as a lessee (tenant), the lessor (landlord) will be well aware of the position, however, independent advice in this regard could be helpful. The purpose of the Retail Shop Leases Act is to protect retail business operators, and includes general provisions about seeking financial and legal advice. In fact, you are required by law to provide the lessor or landlord with a financial and legal advice report.

 

In order to comply with the obligations set out in the Retail Shop Leases Act, both the lessee (tenant) and the lessor (landlord), must follow the process set out below:

 

Lessor’s disclosure obligation

 

The lessor must give the prospective lessee a draft of the lease and a disclosure statement at least 7 days before (the ‘disclosure period’) they enter into a retail shop lease.

 

If the lessor does not comply or provides a defective disclosure statement, the lessee can terminate the lease within 6 months of entering into the lease and the lessor is responsible for paying reasonable compensation for damage suffered to the lessee. Different obligations apply for major tenants and some limitations and exceptions may apply to these disclosure obligations.

 

The lessor’s disclosure obligations can be waived as a term of the lease, and a solicitor will provide advice to the lessee about the implications in a legal advice report.

 

Lessee’s disclosure obligation

 

Before entering into a retail shop lease, the prospective lessee must give the lessor a disclosure statement outlining information of the legal identity of the lessee and their financial position.

 

Assignor’s and Assignee’s disclosure obligations

 

At least 7 days before asking the lessor to consent to the assignment, the assignor must give the prospective assignee a disclosure statement. Before the lessor is asked to consent to the assignment, the assignee must give a disclosure statement to the assignor.

 

This is often necessary in circumstances in which the business is being sold and, necessitating a transfer (assignment) of the lease currently in place.  

 

Lessor’s and Assignee’s disclosure obligations

 

During the disclosure period the lessor must give the prospective assignee a disclosure statement and a copy of the lease. Again, different obligations apply for major tenants.

 

Legal Advice Report

 

A prospective lessee or assignee of a retail shop (excluding major tenants) must obtain a legal advice report from a Lawyer. This involves the lawyer reviewing the entire lease before providing the lessee with comprehensive advice, followed by the report. The lessee then provides this report to the lessor. Searches may be required to be conducted in order to provide adequate advice to the lessee.  The Lawyer must then sign a form to confirm the advice that has been given.  This form must be provided to the lessor.

 

A major tenant is a tenant that has five (5) or more retail shop leases on foot in Queensland.

 

Financial Advice Report

 

A prospective lessee or assignee must also obtain a financial advice report from an accountant, who will review the entire lease and provide the lessee with comprehensive advice about financial costs of the lease prior to providing the report. Similar to the legal advice report, the advisor must sign a form confirming the advice that has been given and this form is provided to the lessor.

 

Effect of failure to comply with obligations

 

If a required document is not provided prior to the lease or assignment being entered into, the affected person has two months to raise a retail tenancy dispute and ask the tribunal for an order that the document be provided.

 

Lessor to give lessee certified copy of the lease

 

The lessor must give a certified copy of the signed lease to the lessee within 30 days of the retail shop lease being signed by all parties.

 

In short, if you are considering starting or purchasing a business that operates with a shop front, it is likely that the lease in place is a Retail Shop Lease.  Prior to negotiating the terms of the lease, we strongly recommend that you engage a lawyer to facilitate the process.  This can save time and stress prior to taking possession of the premises. 

 

Contact Grauf O’Brien Lawyers to arrange a confidential discussion regarding your planned business venture.  We offer fixed fees for Retail Shop Leases and other small business start-up advice and structuring.
 

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