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We received a burning question from Peter regarding leases. He asked…
“I own a retail shop and it has just been vacated, the new tenant does not want a lease, they just want to rent it month by month.
I know the person and am happy with the arrangement however I want to know if I have to have a retail lease by law and if I need to give the tenant a Landlord’s Disclosure Statement?
The shop is in Victoria.”
Answer
Under Section 12 of Victoria’s Retail Leases Act 2003, the Act does not apply to retail premises if the term of the lease is less than 12 months, so in these circumstances there would be no requirement to provide a disclosure statement or a lease.
However if the tenant is in continuous possession of the premises for more than 12 months the Act will apply from the day the tenant takes possession of the premises. The landlord then has 60 days to provide a disclosure statement and a lease document.
Furthermore sect 16 of the Act states – A landlord or tenant must not enter into a retail premises lease that is not in writing and signed by all of the parties to it.
If the Act does apply because the lease is continuing beyond the 12 month period, the tenant would be entitled to a minimum 5 year lease. If you want a Lease of less than 5 years, you need a signed certificate from the Small Business Commissioner saying that the tenant has had advice on the topic.
Even though the tenant has requested the month to month arrangement without lease documentation, a tenant obtains certain rights on taking possession, even if a formal Lease has not been signed.
For instance, once you start to accept rent for the premises who is to say that this isn’t a full retail lease? The fact that the landlord is accepting the rent demonstrates a lease is in place even though it is a verbal arrangement, and as a minimum you have breached the Act by
- not having written lease in place,
- not issuing a disclosure statement.
As you can see giving the tenant vacant possession without documentation in place may cause potential problems down the track and this is the last thing you would want to happen if you have a trusting relationship with your potential tenant.
Why not consider putting a simple lease in place with a term of less than 12 months and specify that the tenant has the right to end the lease at any time?
Reassess the issue in 12 months time and if they decide to stay, treat it like a proper retail lease and you will be in full compliance with the Act and your obligations as a landlord.
Our straight commercial lease agreement document would suit this situation whilst the term is under 12 months. You could write it up yourself quite quickly and the cost is minimal $79.95.
Commercial Lease Agreement for Victoria
However if the term goes beyond 12 months in which case the Retail Leases Act 2003 would apply and you would require the Retail Leasing Kit.
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