Retail lease transactions are heavily regulated in Australia.
In most states and territories, retail tenants have the right to a minimum 5 year lease term. This minimum term includes the initial term plus any option periods, so a lease of 3 years, plus an option for a further 3 years will satisfy the 5 year minimum term requirements.
Where a retail lease is entered into for a term of less than 5 years, the agreement will still be valid – however, the term will be automatically bumped up so that it is equal to 5 years, thus satisfying the 5 year minimum term requirement.
This is generally seen as measure to safeguard tenants and protect them from losing goodwill and value associated with an established business and costs of relocation.
However, in some situations, the tenant desires to have a shorter term of less than 5 years. Is this possible?
Yes, you can enter into a lease for a term that is less than 5 years.
Western Australia allows for terms of less than 6 months without affecting the 5 year minimum term requirements.
There is no minimum term requirement in Queensland.
In all other states, perhaps the easiest way to get around the 5 year minimum term is to create an agreement for the desired lesser term (such as 1 year) and add options to it totaling 5 years.
So for example, you could have a short 1 year lease, with 4 options to renew of 1 year (or however you want to structure it) bringing the initial term plus options to 5 years. This allows the tenant to have a short 1 year lease, with the option to continue on at the tenant’s discretion for up to 5 years.
In this case, for all states and territories (other than WA or QLD) a lease for a term of less than 5 years can be achieved by following the procedures set out in the retail leases legislation in the state or territory the shop is located.
Generally, this requires the tenant to receive a waiver certificate from a solicitor, in which the solicitor certifies that he or she has explained the effects of a shorter term lease to the tenant. In Victoria, the waiver is sought from the Small Business Commissioner. The tenant will then need to supply the waiver certificate to the Landlord.
The particulars and details of short term leases and waiver’s will vary slightly from state to state – so check the legislation in your state or RP Emery & Associates Retail Leasing Kit for more detailed information.