Who pays for preparing a lease?

The Retail Leases Act 1994 (the Act) states that the landlord pays the full cost of preparing the lease, including the mortgagee consent fee.

If the landlord or agent asks the tenant to pay the legal costs, the tenant should write to them and refer to sections 3 and 14 of the Act.

However, if the tenant has asked for changes to the lease after giving the tenant’s disclosure statement to the landlord, the tenant may be required to pay for those changes.

If the tenant has to pay for these changes, the landlord or agent must provide copies of relevant accounts or receipts. The tenant doesn’t pay if the changes are variations to the rent or the term, changes due to the landlord’s failure to make previously agreed changes, or a change requested before the landlord receives the lessee’s disclosure statement.

The cost of registering a lease is generally paid by a tenant. Leases with a lease period of more than three years, including any option period, must be registered. This helps to protect the tenant’s interests.

The tenant pays their own legal costs.

Other lease payments

The landlord is also prohibited from asking for key money when entering into a retail lease.

However, the landlord or agent is entitled to receive payment of rent in advance, a security bond or some other bond or guarantee from the tenant.

When a tenant asks to transfer (assign) a lease, the landlord can expect to have their reasonable legal costs paid. These costs are not considered to be key money because the landlord is not benefiting and is incurring costs because of the tenant’s request to transfer the lease.

When a lease is being renewed or extended, the landlord pays the full costs of preparing the lease.

Retail leases with a lease period of more than three years, including any option period, must be registered.

A lease of three years or less can be registered if the parties agree. The lease will need to be in registrable form.

If the lease is more than three years, the lessor should lodge the lease at Land Registry Services within three months after the tenant returns the signed lease to the landlord or their agent.

The tenant usually pays the lease registration fee.

The three-month period for registration can be extended if there is a delay in obtaining consent from the mortgagee (often a bank that has lent money to the property owner so they could purchase the property) or head lessor (if there is one).

If a lease is registered it will show up in property searches. This benefits the tenant if the property owner wants to sell the property, ensuring that the lease is recognised by any new owner.

Key money is any sort of non-refundable benefit, usually money, paid in exchange for the granting, renewal, extension or assignment of a retail lease.

The Retail Leases Act 1994 prohibits landlords or their agents from asking for or accepting key money in relation to granting or assigning a lease. Lease terms that require the tenant to pay key money are void.

Anyone seeking or accepting key money is guilty of an offence and could be fined up to $11,000.

The tenant is entitled to recover from the landlord any key money paid or the value of any benefit accepted by the landlord as a form of key money.

Other payments

Key money is prohibited, but the landlord or agent is still entitled to receive payment of rent in advance, a security bond or some other bond or guarantee from the tenant.

The landlord pays the full cost of preparing the lease, including the mortgagee consent fee.

However, if the tenant wants changes to the tenant’s disclosure statement after returning it to the landlord or agent, the tenant may be required to pay for those changes.

When a tenant asks to assign a lease, the landlord can expect to have their reasonable legal costs paid. These costs are not key money because the landlord is not benefiting and is incurring costs that they would not incur except for the tenant’s request (assignment).

Leases with a lease period of more than three years, including any option period, must be registered. The tenant usually pays the registration fee.

Land tax is a type of 'outgoing' expense that a lessor may pass on to their lessee who has a lease covered by the Retail Leases Act 1994 (the Act). Outgoings are payments in addition to rent.

A retail lessee and their lessor should negotiate the lessee’s willingness to pay any part of the land tax, and any other liabilities, before the lease is signed.

The agreed land tax payment and how it is calculated should be detailed in the lease and the lessor’s disclosure statement.

Retail leases are different from other business leases because the Act limits the lessor’s ability to recover land tax from their lessee.

It’s important that you get legal advice if your lease says you are liable for some part of outgoing expenses or statutory charges.

When is land tax payable?

The lessor might not be paying land tax at the time a lease is signed, but as land values rise, the owner may reach the taxable threshold ($755,000 for 2021) and have to start paying land tax.

If the lease states that the lessee is liable or partly liable for all statutory charges, they may have to start paying land tax, even if they have not paid land tax before.

Tenant’s payment

When working out how much land tax the lessee must pay, where this has been agreed to in the lease, the calculation is based only on the value of the land where the leased property is located. (Property owners pay land tax on the combined value of all their properties, not a separate payment on each property.)

If there is more than one retail shop on the lessor’s property, each lessee pays their proportion of the land tax. This is the same for properties in shopping centres.

Example

A lessor owns three properties with a total assessed land value of $2,500,000. The assessed land value of the property where the retail lessee is located is $800,000.

The maximum amount of land tax that the lessor may pass on to the lessee is $820. This is how the amount is calculated:

$800,000    (land value of the leased property)

̶ $755,000    (tax-free threshold in 2021)

--------------
$45,000
--------------

Land tax: $100 + (1.6% x $45,000) = $820

Calculation of land tax

The Revenue NSW calculates land tax based on the combined value of all taxable land that a person owns.

Where lessors provide rental relief to eligible lessees from 1 July 2021 – 31 December 2021, they may be eligible for reductions in land tax. More information can be found at Revenue NSW.

For information about land tax, contact Revenue NSW on 1300 139 816 or email Landtax.Lodgements@Revenue.nsw.gov.au.

Outgoings are expenses related to a rented shop that the tenant has agreed to pay in addition to the rent.

The lease and the lessor’s disclosure statement must clearly specify the outgoings that the tenant has to pay.

Outgoings are a major cost for the tenant. Before you sign the lease, you need to understand these costs and make sure you can afford them.

Some examples of outgoings include management fees, operation costs, cleaning and repairs; and rates, taxes and levies, in some cases. Some outgoings may be paid several times during the year, others after the end of the financial year.

The Retail Leases Act 1994 says that outgoings must be:

• meaningfully disclosed
• directly and reasonably related to the shop that is leased, and
• related to the management, operation, maintenance or repair of the building or shopping centre where the shop is located. This disclosure gives you an idea of the costs of the outgoings, which can go up by market rates over time.

Statements of expenses

The landlord must give you estimates of the expenses (outgoings) for the following year before the end of the financial year and then audited statements within three months of the end of the financial year. At that time you either need to pay costs that were higher than the estimates or receive a refund.

Some statements don’t have to be audited if there are limited outgoings and you’re given a copy of the statements, assessments or receipts.

If you don’t receive your statements or estimates, write to the landlord and ask for them. If the landlord doesn’t provide them within 10 business days of your request, you can stop paying outgoings until you receive the statements.

Once the landlord has provided them, you need to pay the withheld outgoings within 28 days.

This process of notice, withholding and repayment also applies when tenants need to ensure that a landlord provides marketing plans and statements.

As outlined in the Retail Leases Act 1994 (NSW), landlords (lessors) and tenants (lessees) must sign a disclosure statement when entering into or renewing a lease (Schedule 2 of the Act). These disclosure statements provide an opportunity to note any statements or representations made by either party to influence their decision to enter into a lease.

The lessor’s disclosure statement is given by the lessor to the lessee. It contains important information about the premises, the lease and the lessees’s financial obligations.

You should consider it as part of the legally binding agreement between the parties.

The statement must be in writing and the lessor must give it to the lessee at least seven days before the lease is entered into. The statement should contain all the information required under Schedule 2. 
  
Neither party should enter into the lease unless the disclosure statements are correct. Further negotiation should take place if necessary to ensure that both parties are happy with the information disclosed.

Both parties should obtain independent legal and financial advice before signing the lease so that they understand all of  their responsibilities and costs.

The lessor’s disclosure statement includes important details such as:

• the term of the lease and option to renew
• the rent and rent review method
• works, fit-out and refurbishment
• outgoings and other costs
• trading hours.

The statement should include information about any planned or known disruptions such as alterations or renovations to the building or shopping centre, demolition works or nearby road works. If the shop is in a shopping centre, the statement should include details about the centre, such as annual turnover, anchor tenants, floor plan and tenancy mix.

The NSW Small Business Commissioner can advise you on retail lease issues. Contact us.

Tenant’s responsibility 
Within seven days of receiving the lessor's disclosure statement, the lessee must give the lessor a lessee's (tenant's) disclosure statement, or ask for an extension of time to provide this document. In this document, the lessee can make a note of any statements or representations that they are relying upon.

What type of security do you have to give the landlord?

The landlord may ask you for some form of financial security when the two of you are negotiating the lease. This is called the security for the lease.

The tenant and landlord may negotiate the type and amount of the security that the tenant has to provide.

The security can be a fixed amount or an amount equal to a certain number of months rent.

The security may be:

• a cash bond
• a bank guarantee, which is a promise by the tenant’s financial institution to pay the landlord an amount up to an agreed limit if the tenant breaks any of the terms and conditions of the lease. (The tenant usually has to give the bank some form of security to obtain a bank guarantee), or
• a third party guarantee, which is a promise by a guarantor to pay the landlord if the tenant breaks any of the terms and conditions of the lease.

The landlord can draw on the security bond if the tenant fails to comply with any of the terms and conditions in the lease or if the tenant damages the property.

Cash bond

If you decide to give the landlord a cash bond as security, the landlord or agent must deposit the bond with the NSW Government’s Retail Bond Scheme within 20 business days of receiving it. The scheme holds the money in trust and invests the bond in a special account.

The main advantages of giving the landlord a cash bond are:

• it is held by the NSW Government
• there are no fees involved, so the capital amount is secured
• it is for a specified amount, unlike most third party guarantees
• it cannot be called on without your agreement, unlike most third party and bank guarantees, and
• there are approval processes and rules for paying out bond money at the end of the lease which can help keep costs down.

The landlord must give the tenant a receipt for the bond. Check that the landlord has lodged the cash bond with the NSW Government’s Rental Bonds system within the 20 days.

Bank guarantee

The landlord has the right to cash in the bank guarantee or draw on it if the tenant breaches the lease or damages the property. The landlord is not required to inform the tenant that they have called the bank guarantee before they do it.

The landlord must return a bank guarantee to the tenant within two months after the tenant completes their lease obligations.

Third party guarantee

The guarantor may be an individual or individuals, a company or the trustee of a trust.

The guarantee, which may have a financial limit, may be given for the term of the lease or for the term plus any additional terms.

If you have issues about the security you have provided, contact:

Rental Bonds:  

Email – bondclaims@customerservice.nsw.gov.au 

Phone – 133 220 

Post – Rental Bonds Locked Bag 9000 Grafton NSW 2460 

How do I lodge or claim a bond? 

NSW Fair Trading hold all bonds that were previously lodged with the NSW Small Business Commission. To lodge, manage or claim a bond, please contact NSW Fair Trading on 13 32 20, or visit their website 

I can’t find my bond 

You can check your lease to see if it was agreed where your bond would be kept. It may be that your bond has been kept with the managing agent’s trust account or has already been paid out if your lease has ended.  

NSW Fair Trading holds many bonds, including all retail cash bonds and any bonds previously lodged with the NSW Small Business. You may contact Rental Bonds on 13 32 20 to find out if they hold your bond. You may also email bondclaims@customerservice.nsw.gov.au.  

The following information may help them to search: 

• Bond number 
• Premises address 
• Lessee’s name 
• Agent or lessor’s name 
• Date when lodged 
• Bond amount 

If you are still unable to locate your bond, you can contact the NSW Small Business Commission on 1300 795 534. 

Entering into a lease is a serious financial commitment.

Make sure that you’ve done your research, checked out the available, suitable properties in the area where you want to operate and that you’re satisfied you’ve found the right premises in the right location for your business.

Before you sign the lease, revisit your business plan and make sure it’s realistic and covers all contingencies.

Consult a solicitor before entering into the lease – it might save you a lot of time, money and anxiety in the future. A solicitor can advise you about what the lease requires of both you and the landlord.

It’s extremely important that you understand your lease and the commitments you’re making, including paying the rent.

Paying the rent

A lease is a contract that you probably won’t be able to get out of early.

The duty to pay rent regularly is a key term in a leasing contract. When you sign the lease you are agreeing to pay the rent for the full term of the lease.

Depending on the length of the lease, the rent can add up to hundreds of thousands of dollars each year.

If you’re late with your rent, the landlord is able to take possession of the building, lock you out (without written notice) and still claim rent until another tenant is found, which can sometimes take months.

The landlord does not have to reduce your rent if your business is not doing well. Nor does the landlord have to let you out of the lease if you are losing money, having family problems or you’re sick.

Because paying the rent is a major financial commitment, it’s a good idea to get legal advice about the lease and your obligations and the landlord’s.

Check with the local council

Check with the local council where the rental property is located. You may need written consent from the council for the type of business you want to run.

If you are planning a fit-out or any other building work, check with the council’s 'duty planner' to find out if you need to lodge an application for development consent. Don’t rely on what the landlord says about council regulations because zoning and planning regulations can change.

If you need council approval to do building work, think about how much time it will take to get the development approval and then have the work done. This preparation time can see costs mount up without any money coming in. You might be able to negotiate with the landlord for a rent-free period at the start of the lease.

You should also consider what you will do if there are problems or delays, because your duty to pay rent might start before the building work is finished and you can start trading.

Get advice

The prospect of running your own business and being your own boss can be exciting – the start of a whole new way of life.

Before you sign the lease, think about how much time and money is required to make your business a success. Running a business generates a lot of costs which can impact on your ability to pay the rent.

Make sure your business has sound financial backing. Speak to your lawyer, business advisor or accountant. Get them to review your business plan.

Advice on a wide range of business issues is also available from Business Connect, a NSW Government-funded service that provides business advice and business skills training. Business Connect is delivered by independent service providers based across NSW, including specialist and multicultural service providers.

For more information, read our Retail Tenancy Guide.

Rent, fit-out, outgoings, insurance and other items to consider

It is important to be aware of the costs and risks of leasing and incorporate these into your business planning. Seek independent advice from a retail leasing expert, accountant, solicitor or others before signing your lease.

The main costs of leasing are:

1. Lease preparation

The lessor must pay the full cost of preparing the lease, including any mortgagee consent fees. However, if the lessee asks for changes after the signed Lessee’s Disclosure Statement has been returned to the lessor, the lessee may be required to pay for those amendments. For guidance on preparing the lease, see preparing the lease.

2. Fit-out

Lessees will usually be responsible for the costs of installing fixtures and fittings in the premises (the fit-out). In shopping centres, there is usually a standard of construction required for fit-outs. Lessees may also be responsible for some or all of the lessor’s costs of preparing the premises for the fit-out. The Disclosure Statement must state who pays these costs. Lessees must agree to the maximum cost of the lessor’s fit-out costs in writing before beginning the lease. Depending on the cost of the fit-out it may be worthwhile to have an independent certified quantity surveyor verify the costs associated with preparing the premises for fit-out. The lessor and lessee will need to consider/agree who is to pay for any surveyor.

3. Rent

Rent is one of the largest ongoing costs of running a business and is normally paid monthly in advance. Even if a lessee experiences financial difficulties, they must still pay the rent and use the premises only for the business stated in the lease.

4. Changing the rent

The initial rent under a lease is commonly referred to as base rent. The lease must state when and how any change to the rent is to occur. If the lease says the rent is set at current market value, and the lessee and lessor cannot agree on the rent, then the Act provides a process for a specialist retail valuer to determine the rent. The NSW Small Business Commission appoints the valuer and the lessee and lessor share the costs equally. These costs can be upwards of $1,500 per party, however, and will vary depending on the valuer and matter. If either party seeks a review, then both parties may be required to pay for the costs of a further two valuers.

5. Outgoings

Outgoings are expenses of the lessor that the lessee has agreed to pay under the lease. They are usually major costs for the lessee. Lessors are entitled to recover fees for management, operation, maintenance or repair of the premises or land as part of the outgoings. Outgoings may include things such as land tax, cleaning, security, promotional fund levies, council rates, water charges, utilities, insurance, pest control, emergency services levy, management fees and audit fees. The outgoings should be included in the Disclosure Statement and it is important you understand these before signing the lease. Undisclosed outgoings might not have to be paid. Outgoings can go up by market rates over time. For more information, see what are outgoings.

6. ‘Make good’ and end of term provisions

‘Make good’ provisions set out the obligations of the lessee before the lease ends, if any. Typically, these provisions require a lessee to return the premises to the lessor in a similar condition to that at the start of the lease. In some cases, make good involves a requirement for a lessee to strip back the premises to base building (or bare shell) condition and redecorate the premises (e.g. re-paint). It is important to agree to these provisions before signing the lease and use a condition report to document the condition of the premises at the start of the lease. You could also include a provision that an independent certified quantity surveyor may be engaged to determine any make-good costs. Retail leases often include a clause which stipulates that where the lessor and lessee cannot agree on the ‘make good’ costs, the President of the Australian Institute of Quantity Surveyors, or another industry body, will nominate an independent certified quantity surveyor to make a binding determination about these costs.

7. Insurance

The lease may include a provision requiring the lessee to take out certain insurance policies. Check these provisions and obtain a range of quotes for any required insurance policies. For information on insurance claims, see quick guide to making insurance claims

8. Security

The lessor may ask for some form of security when negotiating the lease. This security may be: (a) a cash bond; (b) a third party guarantee, or (c) a bank guarantee. For further guidance on bonds, see Retail bonds: lease security

8a. Cash bond

If the lessee agrees to give the lessor a cash bond as security, the lessor must deposit the bond with the NSW Small Business Commission within 20 business days of receiving it by using the retail lease bond lodgement form.

The main advantages of a cash bond are: it is held in trust by the NSW Government; there are no fees; it is for a specified amount; and there are rules for paying out the bond at the end of the lease. 

8b. Third party guarantees

This is a promise by a guarantor to pay the lessor compensation if the lessee breaks any of the terms of the lease. Be aware that if you personally guarantee a lease, the lessor can sue you for damages should the lessee default and you could personally lose assets or be bankrupted.

8c. Bank guarantees

This is a promise by your bank to pay the lessor an amount in compensation up to an agreed limit if you break the terms of the lease. If you have given a bank guarantee as security, agree in writing when it will end. The lessor must return the bank guarantee within two months of when you leave the premises unless you owe them money.

9. Valuation

Lessors and lessees may wish to get a valuation on the premises to check its market value. This can be done by hiring an expert valuer or by accessing specialist software. This will incur a cost.

10. Key money

A person must not seek or accept key money under the Act. The Act defines key money as any sort of non-refundable benefit, usually money, that the lessor asks for in exchange for the granting, renewal, extension or assignment of a retail lease.

Your lease is a very important legal document that you should keep in a secure place. The lease is evidence of the deal you have made with the landlord and everything both parties have agreed to.

When you start negotiating a retail lease, the landlord or agent is legally required to give you a copy of the proposed lease.

After the lease has been negotiated and agreed to, the landlord or agent must give you an executed copy of the lease within three months after the tenant has returned the signed lease to the landlord or the landlord’s agent or lawyer.

The three-month period may be extended to allow enough time for the landlord to get consent from a head landlord or mortgagee.

If you need advice about getting a copy of your lease or if you have problems with your retail lease, contact us.

If your lease has been registered, you can get a copy of it, for a fee, from NSW Land Registry Services.

Is a holding deposit necessary for a commercial lease?

If you’re considering leasing a commercial property, the landlord or agent may ask you for a holding deposit. The agent or landlord may want something to show that you’re serious about the property, or perhaps even to take the property off the market.

A cash deposit is often used as a way to hold the premises for the potential tenant before a formal deal is reached. However, for commercial premises there is no law covering what the deal is or should be, what the deposit should be, or when a deposit should be refunded.

Both parties should be clear about what the holding deposit is for, including whether it’s refundable and under what circumstances. This may prevent a court or tribunal from having to make a decision for you. Without some kind of agreement between the parties, only a court or tribunal can make a ruling about the deposit. 

Taking the property off the market

You might want the property taken off the market and held exclusively for you while you get organised. In this case, a holding deposit may be negotiated to act as security for the lessor in the event that the lessee proceed with the lease. Whether or not the holding deposit is refundable will depend on what was negotiated between the parties to compensate the lessor for taking it off the market.

Are deposits refundable?

You may be prepared to pay a deposit, but only if it’s refundable if you change your mind or in some other circumstances.

Landlords may want an agreement where you don’t get your money back if you change your mind. You may be able to negotiate for the deposit to be refunded in full, or in part, if they are allowed to keep marketing the property.

Disputes often arise when you’re not clear about the circumstances where the deposit is refundable or non-refundable. There are a few things to think about when deciding if the premises are suitable for you, and if you wish to provide a holding deposit to secure the property.

These may include:

• Local council requirements (including a DA)
• Requirements of strata
• Suitability of the premises for the intended use

If these are not considered, you may find that the premises is no longer suitable for your business and decide not to proceed with your lease. In that case, you may lose your deposit, depending on the deal you’ve made. It’s a good idea to undertake these checks early. The Commission offers low-cost mediation services to help parties reach an agreement and avoid going to a court or tribunal. You may apply for mediation on our website.

Counting it towards the lease security or rent

It’s quite common when you have paid a holding deposit and then go ahead with the lease, that the landlord will apply the holding deposit to the agreed security deposit or rental bond, and/or to the first month’s rent.

This depends upon the deal you made when you handed over the deposit.

Payment of a holding deposit is often the sign of good faith that a landlord is looking for. However, you should still be clear about what happens if one party decides to walk away from the deal for any reason.

Potential tenants should keep in mind that the landlord is likely to have gone to some expense already, by paying an agent to negotiate, running due diligence checks and consulting a solicitor. The landlord doesn’t want to go through that expense again and again for the same property and so will often try to gauge whether a potential tenant is serious or 'just browsing'.

Where to get advice

The NSW Small Business Commissioner can help you if you have a commercial leasing issue or dispute.

We offer information, guidance and mediation services for businesses in all types of business-related disputes.

For many people, getting some initial strategic and procedural advice from us is enough to work out their issue. Contact us.

Key dates and how to manage issues as they arise

To best manage your lease and any issues that may arise during the lease, it’s recommended that you maintain your records with the following:

• a copy of the signed lease;
• a copy of the signed Retail Lease Disclosure Statement;
• the condition report and any photos you took as part of this;
• notes about discussions you have with the lessor/ lessee or any relevant agents or advisors in case you need to refer to them; and
• a list of key dates related to the lease (see below).

Potential Issues That May Arise During The Lease

If any of the below issues arise, you should seek independent advice if you are unsure about what to do, and review your lease. For further guidance, you should also review the Retail Leases Act 1994 No 46.

Disruptions

Lessees should tell the lessor in writing as soon as possible about any disruptions impacting their business, as it may affect when they may be able to claim compensation for such disruptions.

The Act requires the lessor to take all reasonable steps to avoid disrupting the lessee’s business. Lessees may be compensated, unless they were told about the disruption before starting the lease.

Keep detailed records of any disruptions so you can be specific about their impact and have a better chance of getting fair compensation if your business is affected. Collect evidence to help validate your claims such as photos or relevant sales/customer data. Consider seeking independent advice if necessary.

Repairs and damage

Leases usually state that you must keep the premises and equipment in good repair. However, leases often don’t say who must replace equipment when it breaks down and can’t be repaired. The lease should clearly state the lessee’s or the lessor’s obligations to repair or replace equipment that the lessor supplies.

Tell the lessor in writing as soon as possible about any damage, or subsequent repairs that are required.

Lessees are entitled to compensation if they write to the lessor asking them to clean, replace or fix something that they are responsible for and they don’t do this as soon as possible. If the lessee can’t use the premises at all because it is damaged, they don’t have to pay rent until it is repaired, and may be able to terminate the lease.

A lessee is not usually responsible for latent or inherent defects to the building, but the lease should clearly outline who is responsible for these, and in which circumstances.

It may be wise to have insurance for the premises. This may also be a condition of the lease.

Relocation notices

If a lessee receives a relocation notice, they should check whether the lease has a relocation clause. For further guidance, see what is a relocation notice.

If the lease has a relocation clause, the lessor must give the lessee at least three months’ notice in writing when they ask the lessee to move to another premises.

The lessee has one month to tell the lessor that they don’t want to move when they get the relocation notice.

If the lessee does not accept the new premises, the lease finishes at the end of three months from the original notice (or earlier if agreed).

Demolition notices

If a lessee receives a demolition notice, they should check whether the lease has a demolition clause and if the lessor has to compensate them for reasonable costs.

If the lease has a demolition clause, the lessor can end the lease to demolish the building or shopping centre if the work requires vacant possession of the premises. This applies whether all or part of the building is being demolished. Demolition includes any major repair, renovation or reconstruction.

The lessor must give at least six months’ notice that the lease will end because of demolition. You can end the lease during that time by writing to the lessor and giving at least seven days’ notice.

What happens if someone breaches the lease?

If a lessee or lessor does not abide by the lease then it may be a breach of the lease. For example, if the lessee doesn’t pay rent on time it is a breach of the lease. Similarly, if the lessor fails to repair or maintain the premises as stipulated in the lease, it is a breach of the lease. Where a party has breached the lease, the other party may recover any losses they experience because of the breach. Note that the non-breaching party must take reasonable steps to minimise their losses. In addition, certain breaches may entitle a party to terminate the lease. Seek legal advice if concerned.

What happens if the lessee has been locked out of the premises?

If a lessee has been locked-out of the premises, or received a letter or warning that the lessor or their agent is considering what is sometimes known as ‘re-entry’, ‘repossession’, ‘eviction’ or ‘termination’ they should seek immediate independent legal advice on these warnings due to the potential impact on their business. For further guidance, see I’ve been locked out. What happens next?

Improper conduct

Neither the lessee nor the lessor may engage in unconscionable conduct, or misleading or deceptive conduct. This is a complex matter that usually requires legal advice to make a successful claim.

Dispute resolution

The NSW Small Business Commission provides mediation services for disputes between the lessor and lessee of a retail lease. Mediation is an effective and cost-efficient way of resolving disputes, as a neutral mediator helps both parties try to negotiate a solution. If you need help resolving a dispute, you can submit an application for Mediation at no charge. A Mediation Officer will be allocated to your matter and will assist both parties. If the parties decide a mediation session could help, they share equally in the relatively low Mediator’s fee. For more information on mediation and the costs, see how does mediation work?

To apply for a mediation, you can fill out a mediation application form.

The NSW Civil and Administrative Tribunal

If mediation is not successful or appropriate you may be able to seek orders from the Tribunal in order to resolve the dispute.

Unlike mediation, the Tribunal strictly focuses on legal matters and solutions. You can represent yourself at the Tribunal or engage a lawyer. If you want to represent yourself, consider getting legal advice about your case before the hearing so you know exactly how to put your arguments to the Tribunal and improve your chances of success. For further guidance, visit NSW Civil and Administrative Tribunal's retail leases page.

Tips

• Keep written records of your dealings with the lessor/lessee during the term of the lease.
• Keep detailed records of any disruptions or damage so you can be specific about their impact and have a better chance of getting fair compensation if your business is affected.
• Try to resolve disagreements by discussion and negotiation wherever possible as they will be less costly and time-consuming.
• To find out more about you rights when facing these issues, visit our Help Centre for information on retails leases and more.
• If you need help resolving an issue and would like to access our mediation services, see how does mediation work?

If your lease has expired and doesn’t include an option to renew, the landlord doesn’t have to renew the lease.

However, most leases give the tenant an opportunity to 'hold over' the lease and stay in the shop on a month-to-month basis at the end of a fixed term. The tenant becomes a periodic tenant or tenant at will. It’s always best to have the landlord’s written agreement to hold over.

In this situation, either the tenant or the landlord can end or change the lease with one month’s notice.

At least six months and not more than twelve months before your lease expires, the landlord or agent must tell you in writing whether or not they are offering you a new lease or an extension of your lease if you don’t have an option.

If the landlord is not offering you a new lease, their written notification may tell you if you can continue to occupy the shop on the basis of holding over in the premises.

Holding over provides benefits in certain circumstances. It gives you time to negotiate a new fixed term lease for the premises or to find a different location for your business. It lets you sort out personal or business details if you are not sure you want to re-commit to a fixed term.

During the holding over period, although the lease has expired, the terms are still in effect. This means the tenant has to meet all the obligations of their lease, including maintaining the premises and making all payments, including rent, unless there is a written agreement to vary the terms of the lease.

The lease often gives both the tenant and the landlord the right to terminate the hold over period by providing written notice, usually 30 days.

Sometimes the lease allows the landlord to convert it to a month-to-month lease if the tenant has breached the lease. If this happens, the tenant can go to the NSW Civil and Administrative Tribunal and ask that the lease remain a fixed term lease. However, the Tribunal will expect the tenant to fix the breach of the lease and comply with the lease in the future.

Many retail leases include a relocation clause. This allows the landlord to require you to move your shop to another location so that building work can be carried out. You should check your lease to see if it includes this clause.

The landlord can’t relocate your shop unless you are given three months written notice of relocation and details of an alternative location for your shop. This is the 'relocation notice'.

The landlord can’t force you to relocate without giving you information about the planned work at the building or shopping centre that shows the plan is genuine and will be carried out soon after your relocation. The landlord must also show that the work can’t be done without vacant possession of your shop.

Under the Retail Leases Act 1994, the tenant whose business is relocated has some minimum legal entitlements. However, the tenant and landlord may negotiate a new five-year lease to cover the relocation if they want to.

Minimum entitlements

You are entitled to a new lease on the alternative shop on the same terms and conditions as your existing lease. However, the term of the new lease will be for the time remaining on your existing lease.

The rent for the new shop should be the same as for the existing shop, but adjusted to take into account any commercial differences between the two shops, such as the new shop being in a more favourable position in the shopping centre.

You and the landlord may also negotiate other arrangements about the relocation.

Ending the lease

The tenant can end the lease within one month of receiving the written relocation notice from the landlord.

To terminate the lease, you must tell the landlord in writing, giving three months’ notice, unless you and the landlord agree to some other timeframe.

If you want to terminate the lease but don’t follow this process, the landlord can assume that you have accepted the offer of the new lease. You and the landlord may also negotiate a different arrangement.

Costs of relocation

The landlord must pay reasonable costs involved in the tenant’s relocation.

These costs may include:

• dismantling fittings, equipment and services
• changes (fittings, finishes, equipment etc) to the new shop to bring it up to the same standard as the previous shop, and
• legal costs.

If you and the landlord can’t agree about your costs, the amount may be decided by a quantity surveyor.

If you can’t agree on a quantity surveyor to do the work, the president of the Australian Institute of Quantity Surveyors will appoint one for you.

How can a tenant surrender or exit a lease before the end of the lease?

Ending the lease before the lease term expires will require a mutual agreement to be reached between the landlord and the tenant.

There are two ways for a tenant to get out of a retail or commercial lease:

1. Negotiate with the landlord to get their agreement to be let out of the lease obligations

Usually an early exit of the fixed term by a surrender of the lease would be agreed by the landlord in exchange for a financial settlement or ‘break lease fee’. The surrender of lease is usually a formal document or deed.

2. Find another tenant to take over the lease

This would often mean an assignment of the existing lease to a new tenant, but could also be a surrender of the current lease, with a new lease entered into between the incoming tenant and the landlord. An assignment of the lease could also allow the sale of the business but would require the property owner and their mortgagee to approve the new tenant.

What strategies can help a tenant wanting an early exit from their lease?

Negotiate with the landlord as soon as issues start. Having a conversation early to address issues will help prevent matters escalating and could save time and costs overall. Consider using a neutral third-party mediator to facilitate the negotiation.

• Look for a new tenant yourself
• Agree to pay the costs of getting a real estate agent to find a new tenant
• Try to sell the business and assign the lease (noting sections 39-43 of the Retail Leases Act 1994, for retail tenants)
• Consider sub-leasing the whole, or a part of, the premises, with consent of the landlord
• Consider using a neutral third-party mediator to assist with exploring your options with the landlord.

As a tenant, can I just walk away?

Abandoning the property carries a lot of risk for a tenant.

If there are personal guarantees in place, they risk losing their house and any other assets.

Walking away from the lease obligations without negotiating will make it very difficult to make any arrangements with the at a later stage.

The tenant will lose control over the shop and everything in it, which may also expose them to actions from others who have things locked inside the premises – this could be equipment under finance or the belongings of staff or customers.

It also presents a security risk to the property, further exposing the tenant to financial risk. A landlord would be entitled to sue for the rent payable for the balance of the lease term. A tenant’s obligation to pay rent under the lease contract is an express term of the lease and not voidable in a commercial contract for hardship reasons. While there is an obligation for the landlord to mitigate these losses, however debt owed by the tenant will continue to accrue until a new tenant leases the property.

• See also:  Guide for property owners - Lock out, eviction and lease termination 

What are the main steps in a surrender of lease?

Negotiate terms and formalise the arrangement. The parties should negotiate the terms, using a neutral third-party mediator if they cannot reach agreement themselves. 

As the risk and consequences can be high, both parties should consider using lawyers.

Terms of surrender are best settled by a deed, which is a special kind of written agreement that meets certain legal requirements. There is a risk with alternative ‘informal’ agreements that they may be open to a legal challenge and overturned. An executed lease surrender deed is the best way to ensure that the agreement reached is a full and final settlement of all obligations that arise under the lease.

If the lease is registered, then the Registrar-General (of the land title system) can remove the lease from the certificate of title with a Surrender of Lease form.

Ending, renewing, extending or transferring the lease

Your lease will outline when the lease is due to end as well as whether there are any options to extend or renew the lease. As the end of your lease approaches it is important for lessors and lessees to discuss their options so that there can be a smooth transition to appropriate future arrangements.

What happens when a lease, without an option, ends?

If the lease does not have an option to extend or renew then when the lease ends, the lessor is free to find a new lessee.

The lessor must give the lessee written notice about whether they intend to offer the lessee a new lease or if they want the lessee to move out at the end of the current lease. This notification must be given at least six months before the lease expiry date and not more than 12 months before expiry.

If the lessor offers the lessee a new lease and the lessee does not accept it within one month, the lessor can withdraw the offer.

If the lessor doesn’t issue a notice telling the lessee whether there will be an offer of a new lease, the lessee should consider writing to the lessor before the lease ends to ask the lessor for this notice indicating their intentions. Otherwise, the lease may continue on a month-to-month basis.

The lease can be extended by up to six months from the time the lessor gives the lessee the notice.

The lessor does not have to negotiate a new lease, or an extension, and they can stop negotiations at any time. They must tell the lessee in writing that they have finished the negotiations before they can advertise the premises for lease.

If no extension is offered or agreed between the parties then by the end of the lease you must vacate the shop, remove your belongings and ‘make good’ the premises as outlined in the lease.

For more information, see what happens when a lease, without an option, ends?

What happens if the lease has an option to extend or renew the lease?

A retail lease may include an option to renew or extend the lease.

Check the lease to see what you need to do to exercise the option and when it needs to be done.

If the lessee wants to take up the option, they must normally tell the lessor in writing during the ‘option exercise window’ stated in the lease. If the lessee misses the last date to exercise the option, they will probably lose the right to the option.

Read more about lease options.

Rent changes resulting from a lease extension or renewal

If the option to extend or renew the lease states that the rent changes to current market rent, the lessee may ask the lessor in writing to outline what the new rent will be. The lessee may send this request to the lessor before the time to exercise the option starts, usually nine to six months before the end of the lease.

If the lessee and lessor cannot agree on the current market rent, then the Act provides a process for a specialist retail valuer to determine the rent. The NSW Small Business Commission appoints the valuer and the lessee and lessor share the costs equally.

These costs can be upwards of $1,500 per party, however, will vary depending on the valuer and matter. If either party seeks a review, then both parties may be required to pay for the costs of a further two valuers.

Once the current market rent is agreed or determined, the lessee has up to 21 days to exercise the option. If the lessee misses the date to exercise the option, they will probably lose the right to the option.

Download an application for appointment of a specialist retail valuer.

Continuing the lease on a month-to-month basis

While the lease may not include an option to renew, many leases give the lessee an opportunity to ‘hold over’ the lease and stay in the premises on a month- to-month basis at the end of the lease. The lessee becomes a ‘periodic lessee’ or ‘lessee at will’ and in this situation, either the lessee or the lessor can end the lease with one month’s notice.

Be aware that some franchise and licence to sell agreements require a lease not to be month- to-month.

If a lessee wants to hold over on a month-to-month basis, they should check the terms of the lease to see whether this is permitted and consider asking the lessor for their consent in writing before the lease ends.

It can be risky to remain in a month-to-month lease without negotiating for a new fixed term lease.

For example, it can and does happen that lessees are unable to sell their business because their lessor is able to choose to terminate the month-to-month lease and a buyer typically wants a longer term lease.

It may be wise business practice to actively seek to negotiate a new lease with a new fixed term before you enter into a month-to-month lease unless that works for you (e.g. because you are seeking premises elsewhere).

Read more about lease hold overs and renewals.

Are you required to ‘make good’ the premises at the end of the lease?

‘Make good’ provisions set out the obligations of the lessee before the lease ends, if any.

Check if the lease has a ‘make good’ provision. Typically, these provisions require a lessee to return the premises to the lessor in a similar condition to that at the start
of the lease. In some cases, make good involves a requirement for a lessee to strip back the premises to base building (or bare shell) condition and redecorate the premises (e.g. re-paint). Ideally, you may be able to refer to the condition report prepared at the beginning of the lease.

If the lessee is vacating the premises be sure to leave enough time to remove your property and restore the premises to the state agreed in the lease. Alternatively, parties often agree to a payment by the lessee to the lessor in lieu of the lessee carrying out the make good, leaving it to the lessor to carry out as necessary. Lessees can try negotiating with their lessor for this arrangement, if preferable. If lessees don’t carry out the make good, they will normally be liable to pay the agreed costs.

Retail leases may include a clause which states where the lessor and lessee cannot agree on the make good costs, the President of the Australian Institute of Quantity Surveyors (AIQS), or another industry body, will nominate an independent certified quantity surveyor to make a binding determination about these costs.

Selling the business

If the lessee decides to sell their business, they will often be expected to transfer (assign) their lease to the buyer (the assignee). So, there are two transactions that may need to occur – a sale of business and a transfer of lease. Asking the lessor to agree to the assignment of the lease involves giving information to the lessor and to the new lessee, in order to be released from the financial obligations of the lease.

Under the Act, an Assignors Disclosure Statement is to be provided to the lessor when a lessee is requesting the lessor to consent to the assignment (transfer) of a lease. A copy should also be given to the assignee (proposed new lessee). Download a copy of Retail Lease Assignor's Disclosure Statement.

You should also consider getting independent advice. Read more about transferring your lease.

Collecting your property after the lease has ended

Usually, unless the lease states otherwise, the property the lessee brings into the premises remains the lessee’s property after the lease has ended. The lessor has to give the lessee reasonable opportunity to remove their goods, whether the lease has expired, or it has ended early because of a breach of the lease terms. The lessee should contact the lessor and arrange a suitable time to collect their goods. Lessees may be liable to the lessor for compensation or damages for leaving their goods at the premises if this has not been agreed. Read more about the lessee’s right to enter a property after a lease ends.

Tips

• The lessee should ask the lessor for an updated Disclosure Statement before they exercise the option to renew or extend the lease.
• If the lessee is vacating the premises be sure to leave enough time to remove your property and restore the premises to the state agreed in the lease (see sections 2 and 4 of this guide which refer to ‘make good’ provisions).

Can I collect my property after the lease has ended?

Once the lease has ended and the tenant has moved out, the tenant has lost the right to enter the premises.

If the tenant wants to enter the premises, they must have the landlord’s permission.

Check your lease to understand what your responsibilities were at the end of your lease. You and the landlord may have negotiated what you had to change or remove to 'make good' the premises.

Property the tenant has left behind is not automatically considered to be abandoned, nor does the landlord automatically become the owner of any goods left behind.

Many leases say that the property the tenant brings into the premises remains the tenant’s property after the lease has ended.

If the goods left behind belong to someone else, such as a supplier, the person who wants to recover the goods may need to satisfy the landlord that they are the owner or have a right to the goods.

Collecting your goods

Contact the landlord and arrange a suitable time to collect your goods. Make sure you get this agreement in writing. 

Further information on retrieving uncollected goods can be found here.  

If you are having difficulty regaining access to a premises or collecting your property after a lease has ended our mediation team may be able to assist you. Please contact us on 1300 795 534 

How to transfer your lease

When you want to transfer your retail lease or sell your business, it’s important to follow the process set out in the Retail Leases Act 1994 (the Act).

Transferring a lease is known as assigning a lease. The tenant (lessee) is the assignor of the lease and the proposed new tenant is the assignee.

You must ask the landlord in writing for consent to transfer (assign) the lease.

When transferring a lease to a new tenant, these documents are required:

• lease
• lessor’s disclosure statement
• lessee’s disclosure statement
• assignor’s disclosure statement.

The assignor’s disclosure statement, which the selling tenant gives to the proposed new tenant and the landlord, advises whether there are any outstanding notices or encumbrances on the shop, the lease or the fixtures and fittings. It also includes whether any rent benefits the landlord has given to the selling tenant and information on the trading performance of the shop.

The landlord must respond to the request for transfer (assignment) within 28 days from the date they receive all the information. If they don’t respond, the assignment may be deemed to have taken place if you have followed the process properly, the use of the shop isn’t changing and the proposed tenant's financial standing and experience is similar to yours.

The full procedure for getting consent to a transfer is set out in section 41 of the Act.

Steps to take

This is a brief summary of the steps you must take when assigning a lease.

1. Get an updated copy of the lessor’s (landlord’s) disclosure statement. If you have not been given as updated disclosure statement during the lease, ask the landlord, in writing, to give you one. If it isn’t provided within 14 calendar days, you may update the statement to the best of your knowledge (with information on current outgoings instead of estimated outgoings).
2. Give the lessor’s disclosure statement to the proposed tenant.
3. Collect the following information from the proposed tenant: 
   1. their name and contact details
   2. documents showing their financial standing, and
   3. their business experience.
4. Write a paragraph describing how the proposed tenant’s financial standing and experience relates to yours.
5. Give a copy of the assignor’s (tenant’s) disclosure statement to the proposed tenant (and to the landlord) at least seven clear days before the assignment if you want to be protected from ongoing liability under the lease.
6. Write to the landlord to request their written consent to the assigning of the lease.

Provide the information listed in steps 3 to 6, to the landlord by:

1. delivering it personally to the landlord or the landlord’s agent;
2. leaving it at, or posting it to, the last known residential or business address of the landlord in or outside NSW,
3. delivering it as set out in section 81A of the Act.

Documents to collect

The following are checklists of the documents you need to write or collect when you are proposing to assign (transfer) your retail lease. Make sure you give yourself enough time to collect all of them.

Documents for the proposed tenant:

• updated copy of the lessor’s (landlord’s) disclosure statement
• assignor’s (tenant’s) disclosure statement
• assignor’s signed statement certifying that they have provided the required information to the assignee.

Documents for the landlord:

• letter requesting assignment
• proposed tenant’s contact details
• documents showing the proposed tenant’s financial standing
• statement of proposed tenant’s business experience
• statement of how the proposed tenant’s financial standing and experience compares to yours
• assignor’s disclosure statement
• assignor’s signed statement certifying that they have provided the required information to the assignee
• assignee’s signed acknowledgement of receipt of the required information from the assignor.

Problems transferring your lease?

When a tenant wants to sell their business, particularly a retail shop, the transfer (assignment) of the lease may be critical.

The lease protects your right as the tenant – and the right of any buyer – to operate from that premises. If you don’t have very long to go on the fixed term, or if the landlord won’t agree to transfer the lease, this could impact on the price you can get for your business and perhaps prevent the sale altogether.

As a tenant, you aren’t likely to have a right to sell to absolutely anyone. However, the landlord will most likely have an obligation to permit the transfer as long as they aren’t left short.

Commercial leases

The first place to look for any rights and obligations to do with the transfer of your commercial lease is the lease itself.

You may find in the lease, or from talking to your legal advisors, that the landlord can’t 'unreasonably refuse' your request to assign the lease.

The landlord may be concerned that the new tenant won’t be able to sustain the lease for the rest of the term.

If you’re selling because the business is not going so well, then the landlord might be hoping that a new tenant can turn the business around. However, there’s still a risk they won’t be able to, and the landlord won’t want to let you out of the lease entirely – they may want you to guarantee the buyer’s performance as the new tenant.

Even if your business is doing well, the landlord may not want to take the risk that the new tenant won’t be as successful as you’ve been and could fall behind in the rent or go broke before the fixed term expires.

Make it easy for the landlord to agree

There are some standard ways to handle these issues and gain the support of the landlord:

• make sure the proposed new tenant’s business skills and financial resources are the same as or better than yours
• agree to leave a security deposit or bank guarantee in place (as well as the new tenant providing further security)
• agree to leave personal guarantees in place (in addition to any guarantee by the new tenant)
• agree to commit to performance obligations yourself if the new tenant is not able to meet the lease requirements.

A lease transfer is often accompanied by a three-way 'deed of assignment'. This deed can cover all of the details that will bind you as the assignor (the person selling the business and transferring the lease), the new tenant as the assignee (the person buying the business and taking over the lease) and the landlord.

Retail leases covered by the Act

Retail leases covered by the Retail Leases Act 1994 (the Act), can follow the process outlined above. However, there are a couple of important points that may be relevant.

You can force the landlord to give permission within a certain time after you have provided proof that the proposed tenant has the same or better retailing skills and financial resources as you have.

The proposed tenant must have the same or better skills and resources. The landlord does not have to accept someone who is not as reliable as the current tenant.

As long as you follow the process in the Act, you can, as the assignor (the person selling the business and transferring the lease), end your responsibility for the lease after the assignment. This means that you don’t have to provide security and you don’t have to pay for anything the new tenant fails to pay for after they take over. However, you must follow the process in the Act to get this indemnity.

Who pays for transferring a lease to a new tenant?

The transfer, or assignment, of a lease is initiated by the tenant when they want to sell their business, particularly a retail shop.

The landlord may charge you a reasonable amount to meet their legal and other expenses incurred by agreeing to your request to transfer your lease. The landlord cannot charge you a fee simply for giving their consent.

The tenant has a right to ask the landlord for evidence of their expenses. You don’t have to pay the expenses until the landlord gives you the evidence.

The landlord’s costs are not considered to be key money because the landlord is not benefiting from the transfer.

Seeking or accepting the payment of key-money when consenting to the transfer of a retail shop lease is prohibited under the Retail Leases Act 1994 (the Act).

The full procedure for obtaining the landlord’s consent to a lease transfer (assignment) is set out in section 41 of the Act.

For help with your retail lease issues, contact us.

A retail lease may include an option to renew the lease on the same terms. The lease may also state that the rent is to increase to the current market rent.

Under the Retail Leases Act 1994 (the Act), the tenant has the right to ask the landlord what the new rent will be – an early determination or agreement on the current market rent – before they are locked in to another lease.

Current market rent is what the tenant and the landlord agree it is, or what a specialist retail valuer says it is.

The tenant must request the early determination in writing between six and three months before the last day that the option can be exercised. This is usually between nine and six months before the end of the lease.

Current market rent

Current market rent is the rent that would be paid for the shop if unoccupied and available for rent for the same or similar use.

It doesn’t take into account the value of any goodwill created by the current tenant or the value any fixtures and fittings installed on the premises by the tenant.

Negotiate the rent

You can negotiate with the landlord about what the current market rent will be. Do some research on rents for comparable properties to back up the new rent that you are willing to pay.

When you and the landlord have reached agreement i.e. the market rent has been 'determined' early, you must exercise the option within 21 days after receiving the agreed or determined market rent.

The early determination process overrides the timeframe for exercising the option set out in the lease.

Use a valuer

If you and the landlord can’t reach agreement, you can appoint a specialist retail valuer to determine or value the rent to be paid. Using a specialist retail valuer can be expensive so make sure that the difference between your idea of the appropriate rent and the landlord’s idea makes it worth pursuing this option.

Get advice from the Dispute Resolution Unit in the NSW Small Business Commissioner if you are thinking of using a specialist retail valuer.

If you and the landlord can’t agree on which valuer to appoint, ask the NSW Small Business Commissioner to appoint one for you. You and the landlord share the cost of the determination.

The Act outlines what the specialist retail valuer must consider when determining rent and allows for the valuer’s determination to be reviewed if the parties disagree with it.

Either party can request a review of the specialist retail valuer’s decision.

To apply for the appointment of a specialist retail valuer or the review of a determination, download the application forms.

When your lease ends, the landlord is free to find a new tenant if your lease doesn’t have an option.

However, the landlord must give you written notice about whether they intend to offer you a new lease or they want you to move out at the end of the current lease. The landlord must notify you at least six months before the lease expiry date and not more than 12 months before expiry.

Make sure you know exactly when your lease ends – it’s a critical date. Talk to your landlord about their intentions as early as possible so that you have time to plan your exit.

It’s always important to know the options you have to move your shop or change your business model. Knowing your options gives you power in any future negotiation.

If you decide you want a new lease and your landlord agrees, be prepared to negotiate to get the best deal for yourself. Research current rents for similar shops to back up the new rent that you are prepared to pay.

If the landlord doesn’t give you the notice about their intentions, write to them before the lease ends to ask for the Section 44 notice. The lease can be extended by up to six months from the date they give you the notice.

If the landlord offers you a new lease and you don’t accept it within one month, they can withdraw the offer.

The landlord does not have to negotiate a new lease or an extension and they can stop negotiations at any time. They must tell you in writing that they have ended negotiations before they can advertise the shop for lease.

The landlord may allow you to stay in the shop after the lease ends. This is usually on a month-to-month basis, which either of you may end with one month’s notice.

If you want to hold over on a month-to-month basis, ask the landlord for their consent in writing before the lease ends.

Holding over gives you time to negotiate a new fixed-term lease for the shop or to find a new location for your business.

At the end of the lease, the tenant and the property owner (landlord or lessor) or their agent need to complete and sign a claim form. The form directs how the bond is to be paid. If part of the bond money is owed to the property owner, the remainder will  be paid to the tenant. 

When only one of the parties signs a claim form, the other party is notified that there is a claim on the bond. If you have received a Notice of Claim and you do not agree with the other party’s claim and would like to dispute it, you need to do the following two things: 

1. Complete the tear off slip at the bottom of the Notice of Claim and send it to Rental Bonds 

• by email to bondclaims@customerservice.nsw.gov.au or  
• by post to Locked Bag 9000 Grafton NSW 2460 within 14 days of the date of the notice. 

2. You will also need to complete an Application for Mediation of a Lease or Bond Dispute Form and email it to we.assist@smallbusiness.nsw.gov.au or apply for mediation online

If notification of your dispute over the bond is not received by Rental Bonds, the money will be paid after the 14-day period. If there is a dispute, the money is held until the dispute is resolved. 

Important note: When you leave the shop, put in a change of address form with the post office so you can be notified of a claim made by the property owner. You can also update your contact details with Rental Bonds team by emailing bondclaims@customerservice.nsw.gov.au 

Under the NSW Retail Bond Scheme, you can dispute the payment of a bond even after it has been paid out. However, if the bond is no longer held by the scheme, it may be difficult to get the funds from the other party without a court order. 

You owe rent

It may be important to note, that falling behind on your rent payments may be considered a fundamental breach of your Commercial or Retail lease; as such the landlord may choose to “reserve their right to re-occupy without notice.”

However, there may be a grace period, whereby a certain amount of days is provided before you are locked out of the premises. Refer to your Commercial contract or the Retail Leases Act 1994 (NSW) for further information.

If you are still unsure, you may wish to seek legal advice about alternate pathways (such as seeking a remedy through court). You can also contact us to discuss some strategic ways forward with our Mediation Services team.

You owe rent – but there’s reasons

You may have reasons why you have withheld paying rent, perhaps you are in dispute with the landlord.

Please note, we do not suggest you withhold payment of rent rent, as again this may put you in breach of your contract which may have further consequences.

Instead you may consider some options such as seeking legal advice, directly negotiating with the landlord, or mediation in view of early resolution of the issues.

Mediation is a voluntary process, where the parties discuss the issues before deciding on their best way forward. If you find yourself in this situation, please contact us and our team will walk you through some strategic options, including the mediation process.

You are up to date with rent, however still received a termination notice

In situations where your contracted lease term has expired and you have not taken up an option to extend the term, nor renewed your lease; then you may be trading on a "hold-over" or month to month basis.

In this instance, the landlord may wish to reoccupy the premises and therefore has provided you notice to vacate. If this is the case, we suggest you check your contract for the required vacancy notice.

If you have received notice to vacate, however would like to stay on further, there may still be options for you to consider. Some of these options include directly negotiating with the landlord regarding terms of an extension. Alternatively, you may wish to consider mediation.

Please contact us to speak with our Mediation Services team.

Learn more about holdover leases.

Going to court and relief against forfeiture

If you have been locked out of your retail or commercial shop, you may consider applying for Urgent “relief against forfeiture” from the relevant court or tribunal, within the appropriate jurisdiction.

This means that a court may reinstate your lease, so that you re-gain access and re-enter the lease. For example, with regard to Retail leases  - under section 72(1)(d) of the Retail Leases Act 1994 (NSW), the NSW Civil and Administrative Tribunal may exercise its discretion to grant this relief if “it considers appropriate”, having regard to all the circumstances of the particular case.

The application to court can be done on an urgent basis, however may still take a period of time to get a hearing. Please note, conditions may apply so to qualify for the forfeiture relief.

In this scenario, it may be best to seek legal advice so to discuss your rights and obligations. You can also contact our team to discuss some strategic options that you may wish to consider.

The lease itself is the primary source of law. Whether you are a landlord (lessor) or tenant (lessee), first look to the terms of your lease to find out your obligations.

One of the most common types of disputes regarding a bond is the “make good” (i.e. returning the property back to its original condition) at the end of a lease. The lease should specify what is required of the lessee, but this is not always clear when you read your lease.

You can change what is required by agreement – usually this is the best way to resolve things.

For example, the lessee might say, “I know I am supposed to remove that internal partition wall, but do you think the next tenant might want it in place?” The lessor might agree if they think that their next tenant can use it.

It’s a good idea to do reports about the condition of the property at the start of the lease, as well as at the very end, once make good has been completed.

Another common claim on a bond is that the lessee is behind in rent or outgoings. The bond is also there to be used by the lessor to cover any legitimate shortfalls.

In either case, if there is a dispute, the lessor and lessee should first try to negotiate a settlement.

If an agreement can't be reached, or communication is too difficult, then our team can help with mediation. For retail lease disputes, mediation is required by law (under the Retail Leases Act 1994).

Contact us for advice on next steps.

In most cases, negotiation and mediation will resolve the dispute. However, some cases may need to go to a court or tribunal for determination and you may need to seek legal advice if the matter is of high enough value.

If your landlord is refusing to carry out repairs, find out your rights by checking your lease. Your lease will often outline their repair obligations.

If the type of repairs your shop requires are not covered in the lease, notify your landlord in writing.

If the landlord refuses to take action or if they don’t respond, you can contact our team to discuss the matter. You can also complete a mediation application.

If you have a retail lease, it’s important to note that under the Retail Leases Act tenants and landlords are required to attempt to mediate this kind of issue before going to court or tribunal.

Here are some questions property owners should considering before locking out, evicting or terminating a lease, including why mediation might be a worthwhile first approach to resolve leasing disputes with your tenant. 

I’m considering locking out, evicting or issuing a termination notice to my lessee. What should I be aware of?

There are a couple of scenarios to consider: 

• Is the eviction because you are owed rent? 

Falling behind on the rent may be considered a breach of your commercial or retail lease and you may be able to exercise a “right to re-occupy”, potentially without providing any notice to the tenant. Locking out, or any form of eviction without a court order, can be risky. 

Before you act, check your lease. Is there a grace period, which would allow the lessee a certain number of days of arrears before the lessor can take any action?  Also, check if the COVID-19 Lease Regulation applies to your situation. Look carefully at risks. For example, if you exercise your right to reoccupy with incorrect calculations and the lessee’s business is affected, you may need to pay compensation to the lessee. 

Another complication following a lease termination is your obligations for the care of property the lessee has left in the premises, which may be the property of staff, customers, or other companies leasing the equipment to the business. Learn more about collection of belongings.

• Are there reasons the tenant can’t pay the rent you should consider?    

If the lessee’s business is just going through a rough patch, from which they are likely to recover, the lessor may wish to consider negotiating short-term rent adjustments instead of terminating. If the lessee’s business hasn’t been successful, consider negotiating an orderly winding up and exit. A negotiated outcome will reduce risk and be more cost-effective in most cases. If the tenant’s business has been affected by COVID19, be aware of the protections extended to tenants under the COVID-19 Lease Regulations 

• Are there other reasons for the eviction?  

In situations where the contracted lease term has expired and the lessee has not taken up an option to extend the term or renewed the lease, the lessee may be trading on a "hold-over" or month-to-month basis.  In this case, you may wish to reoccupy the premises. If this is the case, we suggest you check your lease contract for the required notice period that must be given to the lessee. Learn more about holdover leases. 

A lessee may like to stay on for longer, and you may consider negotiating with the lessee regarding terms of an extension.  

Can the tenant get relief against forfeiture?  

A tenant who has been locked out can seek urgent “relief against forfeiture” from a court or tribunal. This means that a court may allow the tenant back in for a short period and under certain conditions. The lessor may consider speaking to a lawyer about defending such an application by the lessee. 

10 questions to consider: 

1. If the lessee is in arrears, what does the lease say about arrears? How many days behind are they?  
2. How long can I afford to be without rent? 
3. What is the likelihood of recovering any debt owed to me if the lessee is locked out? 
4. What is the lessee’s ability to pay any outstanding rent? 
5. If the lessee is locked out, how likely am I to be able to quickly relet the property? 
6. How is the lessee’s business going – are they still trading? 
7. Will the bond, bank guarantee or any other security cover your losses?  
8. Have I taken action to minimise my losses? 
9. What responsibilities do I have for the property (belongings, equipment, fitout) in the shop premises, including any things owned by a third party?  
10. What else is at stake for me? 

In New South Wales (NSW), a shop that is less than 1,000 square metres in size, sells and supplies goods and services and is a retail business is covered by the Retail Leases Act 1994 (the Act). The lease needs to be for six months and less than 25 years.

The types of businesses covered are listed in schedule 1 of the Act. Your type of business may not be listed, but could still come under the Act if it’s in a shopping centre.

More information

The Act sets out the legal arrangements between tenants and landlords of retail shops.

The Act covers what you must do when:

• starting a lease
• changing the rent
• transferring a lease, and
• there is a dispute between the tenant and landlord.

Schedule 1 of the Act lists the types of businesses covered. Your type of business may not be listed, but could still come under the Act if it’s in a shopping centre.

The Act defines a shopping centre as a cluster of shops which are:

• owned by the same person or company/s on the same strata plan, where at least five shops are used for retail business, and
• regarded or promoted as a centre, mall, court or arcade.

Some retail shops are not covered by the Act:

• shops larger than 1,000 square metres
• a business carried on by the lessee on behalf of the lessor
• any shop within a cinema, bowling alley or skating rink that is operated by the person who operates the cinema, bowling alley or skating rink
• any premises in an office located above a retail shopping centre, and
• other exemptions listed in the Act.

Generally, the Act does not to apply to short-term leases of less than six months.

Different laws cover commercial and residential leases.

IMPORTANT NOTE – It is necessary to know the deadline for exercising the option. It is most likely going to be 1 month or 3 months before the end of lease, not the last day of the lease.

A retail lease will include an initial fixed-term – the minimum number of years you will be renting the shop. This is often 3, 5, or 7 years.

It may also include an option to renew or extend the lease. If there is an option, it is an agreement negotiated by the lessor (landlord) and lessee (tenant) before entering the lease.

The option is the tenant’s right to another fixed-term of the lease on the same terms as the existing lease. The rent will usually change, according to a pre-determined method, and it will have a new start and finish date.

For example, if your initial fixed-term retail lease is 1 July 2020 to 30 June 2023 (3 years), then a 3 year option would cover 1 July 2023 to 30 June 2026.

Check the lease to find out if there is an option and exactly what must be done in order to exercise the option, including the date of when the option needs to be exercised.

If the tenant wants to take up the option, they should tell the landlord in writing by the deadline. The deadline to exercise the option is usually going to be well before the end of the fixed-term stated in the lease.

For example, if the last day of the initial 3-year fixed term is 30 June 2023, the deadline for exercising the option will likely be 30 March 2023. Check each lease to make sure, as these deadlines may vary.

An option is useful when a tenant isn’t certain how long they want to continue in the premises after the initial fixed-term. Another way to think about a lease under a fixed-term of 3 years, with a 3 year option, is that the tenant could have 6 years, but can get out after only 3 by not exercising the option.

Exercising the option

The option in a lease is nearly always a 'call' option – it means the tenant has the right to call upon the landlord to give them a new lease, on the terms originally agreed.

The tenant should make sure they have met all the obligations of the lease and give the landlord written notice that they are exercising the option.

It’s critical that the tenant exercises the option before the deadline. If the tenant is late or provides notice incorrectly, the right will be lost and they will have to renegotiate a new lease based on the market. In many cases, the tenant will want to stay on, but may need to compete with other potential tenants.

Under the Retail Leases Act 1994, if the exercise of the option requires a “market rent review”, then the tenant can ask for an early determination of the market rent. This will help them decide whether to exercise the option.

The tenant may request an early determination of market rent as early as 6 months prior to the option deadline, and as late as 3 months prior to the option deadline. If the lease is 12 months or less, they can ask for an early determination as early as 3 months prior to the deadline, and as late as 30 days prior to the deadline.

If the parties cannot agree on a market rent, a specialist retail valuer can also be appointed under the Retail Leases Act 1994 to help them.

The landlord does not have to remind the tenant or send them a notice about the deadline to exercise the option. However, the landlord may be interested in knowing before the deadline so that they can prepare and may wish to discuss the option before it expires.

Once the current market rent is determined, the tenant will have 21 days to exercise the option.

Rent changes after the option is exercised

A market rent review is only one method of rent review when the option is exercised. The lease may provide for a CPI increase, a fixed amount or percentage increase, or a market rent review.

The parties can agree to a market rent, without needing a valuer. If the parties cannot agree they can have a valuer determine it. Get advice from the Commission’s Mediation Services team if you are thinking of appointing a valuer.

A retail lease is one of the most important financial contracts you can enter into, so it’s vital to understand the commitment that you’re making.

Once the lease is signed, both the landlord and tenant are committed to the terms and conditions within the lease. The tenant’s duty to pay rent regularly is a key term of the lease.

The lease is a contract that you probably won’t be able to end early, so it’s worth getting legal advice about the details in the lease before you sign it.

As well as understanding the lease terms, you should make sure that it includes everything that was agreed to in the negotiations and that you can comply with the terms of the lease.

Be sure you understand if you have to pay for outgoings and repairs and maintenance of the premises, including any fixtures and fittings.

Because of the investment you are making, consider how each section of the lease could affect your business.

If the lease has a relocation or demolition clause, negotiate a deal with the landlord with the expectation that they will decided to end the lease early. If they don’t, you have a good deal. If they do, then you are protected.

What type of security do you have to give the landlord?

Your landlord may ask you for some form of financial security when the two of you are negotiating the lease. This is called the security for the lease. This can often be negotiated by both parties.

It might be a fixed amount or an amount equal to a certain number of months' rent. The security may be:

• a cash bond;
• a bank guarantee, which is a promise by the tenant’s financial institution to pay the landlord an amount up to an agreed limit if the tenant breaks any of the terms and conditions of the lease. (The tenant usually has to give the bank some form of security to obtain a bank guarantee)
• a third-party guarantee, which is a promise by a guarantor to pay the landlord if the tenant breaks any of the terms and conditions of the lease.

The landlord can draw on the security bond if the tenant fails to comply with any of the terms and conditions in the lease, or if the tenant damages the property.
 

Cash bond

If you decide to give the landlord a cash bond as security, the landlord or agent must deposit the bond with the NSW Government’s Retail Bond Scheme within 20 business days of receipt.

The scheme holds the money in trust and deposits the bond in a special account.

The main advantages of giving the landlord a cash bond are:

• it’s held by the NSW Government
• there are no fees involved, so the capital amount is secured
• it’s for a specified amount, unlike most third party guarantees
• it cannot be called on without your agreement, unlike most third party and bank guarantees
• there are approval processes and rules for paying out bond money at the end of the lease which can help keep costs down
• If there's a dispute about who is entitled to the bond at the end of the lease, the parties can access our cost effective mediation service to resolve the issues quickly and release the bond from the Scheme.

The landlord must give the tenant a receipt for the bond and lodge the cash bond with the retail bond scheme within the 20 days.
 

Bank guarantee

A bank guarantee is a promise by a bank to pay the “favouree” (usually the landlord) a certain amount of money if they require it. Most of the time the tenant’s bank will ask them for a term deposit of the same amount to be held at the bank. If the landlord claims the bank guarantee, the bank will claim the term deposit.

The landlord has the right to cash in the bank guarantee or draw on it if the tenant breaches the lease or damages the property. The landlord is not required to inform the tenant that they have drawn on the bank guarantee before they do it.

The landlord must return a bank guarantee to the tenant within two months after the tenant completes their lease obligations.
 

Third party guarantee

A third party guarantee may be given by a guarantor. They may be an individual or individuals, a company or the trustee of a trust.

The guarantee, which may have a financial limit, may be given for the term of the lease or for the term plus any additional terms.

Disclosure Statement

A list of information, as required under the Act, that lessors and lessees must sign before entering into the lease. There are two parts to the Disclosure Statement: (a) Part A, known as the Lessor’s Disclosure Statement, which is signed by the lessor and must be provided to the lessee at least seven days before the commencement of a lease; and (b) Part B, known as the Lessee’s Disclosure Statement, which is signed by the lessee and must be provided to the lessor within seven days after receipt of Part A.

Lessee (Tenant)

The tenant of the leased premises.

Lessor (Landlord)

The owner of the leased premises, who grants a lease to the lessee (tenant).

Hold over

You are on ‘hold over’ if you continue to occupy the premises after the expiry of the fixed term where the lessor has not taken action to end the lease. Leases often give the lessee an opportunity to ‘hold over’ under the lease and stay in the premises on a month-to-month basis. Under this arrangement either party can terminate the lease with one month’s notice. See also: hold-over, holding over period, month-to-month, monthly tenancy, week-to-week, weekly tenancy, tenancy at will.

Make good

The obligation of a lessee at the end of their lease to ensure that their premises are returned to the condition it was first built, the same condition as at the start of the lease, or some other condition as specified in the lease. For example, the make good obligations may include re-painting or restoring partitions. Note: ‘cold shell’ or ‘warm shell’ are sometimes used in shopping centres, where you may need to take all services back to capped points, and install hoarding when the shop front is removed.

Mediation

A confidential process in which the participants, with the support of the mediator, identify issues and commercial interests, develop options, consider alternatives and make decisions about future actions and outcomes. Mediation is a cost-effective and quick way to settle disputes. The NSW Small Business Commission provides mediation services.

Option

Typically an option in a lease is a right for the tenant to call for a new lease with the same terms as their current lease, for a new fixed period of years, removing (striking out) the option that was used, and resetting the rent by a specified method. An option in a lease usually means an extra period that the lessee has the right to occupy the premises, in addition to the initial fixed term of the lease. For example, a lease with an initial fixed term of two years may have two options which will allow the lessee to stay for a further three years. A lessee may choose whether to ‘exercise’ or take up an option. Any option should be documented in the lease (in writing). The deadline for exercising an option is usually some months prior to the end of the lease (not the last day of the lease). If you miss that deadline, you lose the option.

Outgoings

The costs incurred by the lessor in operating and maintaining the leased premises which are typically passed on to the lessee. As such these are usually referred to as ‘lessor outgoings’ (i.e. separate to outgoings of the business itself). The responsibility for paying these outgoings is to be negotiated between the lessor and lessee and should be outlined in the lease. Examples may include council and water rates, repairs and maintenance and management fees. The Retail Leases Act 1994 (NSW) impacts on what outgoings may be charged to the lessee.

Term

The duration of the fixed term of the lease, being the minimum amount of time that a lessee may remain at the premises. A lease agreement may also provide options to renew or extend the lease term.

The Retail Security Bond Scheme is now managed by NSW Fair Trading. For more information, visit their website or call the Retail Bonds Team on 133 220.

Email – bondclaims@customerservice.nsw.gov.au 

Post – Rental Bonds Locked Bag 9000 Grafton NSW 2460