In business, the lease is at the heart of the relationship between landlord and tenant. Signing a lease agreement is a significant commitment for both parties. Today we’ll discuss retail leases and the circumstances in which the written notice principle must be followed.

What is a retail lease?

In New South Wales, shops with a floor area of less than 1,000 square metres that sell or supply goods and services fall under the retail industry. They are governed by the Retail Leases Act. Lease terms generally range from 6 months to 25 years.

Common retail shops include:

Galleries

Bakeries

Hairdressers

Bookshops

Tobacconists

Cosmetics shops

Juice bars

Gift shops

Toy shops, and so on

Of course, some retail shops fall outside the scope of the Retail Leases Act, for example:

– Shops with a floor area greater than 1,000 square metres

– Businesses carried on by the tenant on behalf of the landlord

– Any shop located within a cinema, bowling alley or ice-skating rink that is operated by the person running that cinema, bowling alley or ice-skating rink.

– Any premises located in offices above a retail shopping centre, and the like

Notice prior to lease expiry

Under the Retail Leases Act, between 6 and 12 months before the end of a retail lease, the landlord must provide written notice to the tenant confirming either:

a) an offer to renew or extend the lease, including the new rental terms; or

b) written notice to the tenant that no renewal or extension is proposed.

Note that if an offer to renew or extend is made, it cannot be withdrawn for 1 month after the offer is made. This also gives the tenant one month to consider whether to accept the offer. However, the landlord may agree to keep the offer open for longer than 1 month. The parties may also negotiate a new lease.

If the landlord does not give the tenant written notice between 6 and 12 months before the end of the retail lease, the lease term is extended until 6 months after the landlord gives notice, provided that the tenant, before the end of the lease term, notifies the landlord in writing requesting the extension. However, during the extension period, if the tenant wishes to terminate the lease, they may do so by giving the landlord no less than 1 month’s written notice.

If the retail shop’s lease term is 12 months or less, the time frames referred to above are shortened accordingly.

Examples

1. Retail tenant A and landlord B sign a 3-year lease. If, within the 6 to 12 months before the lease expires, B fails to give A the required written notice to renew, extend, or decline to renew or extend, and A gives written notice before the lease expires requesting an extension, the lease may be extended until 6 months after B gives notice.

2. As above, during the extended lease period, if A wishes to terminate the lease, A must give B no less than 1 month’s written notice to terminate it.

3. Retail tenant P and landlord Q sign a 5-year lease. Nine months before the lease expires, Q sends P written notice offering a 1-year renewal. Without any additional extension, P has one month to decide whether to accept the offer.

It is worth noting that all of the legally required notices mentioned above must be given in writing — verbal notice does not count.

Final thoughts

Retail leases are subject to specific legal requirements. In Australia, ending a lease is not as simple as walking away when it expires. Without a proper understanding of the “advance written notice” rule, you may run into unexpected trouble. If you have any related legal questions, please consult our lawyers.