The Act is the paramount source of retail leasing obligations in NSW. This is because it cannot be overridden by the provisions of any lease if the business is a retail one, even if this is agreed to by both the lessee and lessor.[1] Given this restriction, parties cannot simply contract out of the Act to avoid the obligations it imposes with respect to retail leases. If there are clauses in a retail lease that contravene the Act, they will be deemed to be of no effect.

In addition, there are a number of provisions that impose penalties on parties for contravening the Act. For instance, section 14 of the Act states that a landlord cannot require a lessee to pay expenses in connection with the preparation of a lease. If this section of the Act is contravened, then the lessor is guilty of an offence and liable to pay a fine of up to $11,000.00.

Given there are numerous obligations imposed by the Act on the parties to a retail lease, the question is then – what is a retail lease?

According to the Act, a retail lease is an agreement under which a person grants to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop.[2]  A “retail shop” is defined in the Retail Leases Regulation 2022 (NSW) (Regulation), which came into effect on 1 January 2023.

The businesses prescribed as retail shops are listed in Schedule 1 of the Regulation. Common examples of businesses that are deemed to be retail shops include:

• clothing shops;
• furniture shops;
• jewelry shops;
• linen shops; and
• gift shops.

Although the above examples are straightforward, the Regulation introduced a number of new businesses that are not traditionally retail based but are deemed to be retail shops for the purpose of the Act. Such businesses include:

• yoga studios;
• gyms;
• fitness centres; and
• small bars.

There are a number of businesses prescribed by the Regulation that constitute a retail shop. Even though a party to a lease may not consider the permitted use of certain premises as “retail”, the Regulation may deem otherwise.

If a business is deemed to be a retail shop, a lease with respect to that shop is usually deemed to be a retail lease. This means that the provisions of the Act must be complied with in preparation and operation of the lease. Such provisions include how disputes are to be resolved between parties, how security bonds are to be held and how leases can be terminated in the event of default. A failure to abide by the provisions of the Act can have unintended consequences for both the lessor and lessee, including criminal penalties.

Both landlords and tenants need to carefully cross-check the permitted use of their proposed leases against the Regulation to determine whether they are operating a retail shop. If this is the case, the provisions of the Act may apply, and the parties will need to seek legal advice to ensure that the provisions of their proposed retail lease do not contravene the provisions of the Act.

This article was co-written by Jack Harman, Lawyer.

This article is not legal advice. It is intended to provide commentary and general information only.  Access to this article does not entitle you to rely on it as legal advice.  You should obtain formal legal advice specific to your own situation.  Please contact us if you require advice on matters covered by this article.