Retail Shop Leases: Top 5 Tips when your Landlord wants to redevelop
If you run a retail business from leased premises or if you lease premises within a retail shopping centre, it is more than likely that the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act) applies to your lease.
Application of the Retail Shops Act
The Retail Shops Act regulates the relationship between landlords and tenants in relation to the leasing of retail shop premises in Western Australia.
In general, the Retail Shops Act applies to the leases of premises with a lettable area of 1000 square metres or less that are:
- situated in a retail shopping centre wholly or predominantly used for the carrying on of a business; or
- not situated in a retail shopping centre that are wholly or predominantly for the carrying on of a retail business; or
- used for conducting a “specified business” which includes dry cleaning, hairdressing, beauty therapy, shoe repair and video.
Redevelopment and Relocation
A common feature in a retail shop lease is a redevelopment or relocation clause. This type of clause may allow the landlord to terminate the lease early if the landlord wishes to carry out major works to renovate or redevelop the premises. Such a clause may result in you finding yourself being forced to vacate the premises and relocate your business to other premises – not an ideal situation, particularly if you are running a small business.
The Retail Shops Act, however, offers some protections to tenants of retail shop premises. Where a retail shop lease contains a redevelopment clause, the Retail Shops Act prescribes certain requirements otherwise the redevelopment clause will be void.
Under s14A of the Retail Shops Act, a provision in a retail shop lease about the relocation of a tenant’s business is void unless:
- it is in the form prescribed by the Commercial Tenancy (Retail Shops) Agreements Regulations 1985 (WA); or
- it is in a form approved by the State Administrative Tribunal; or
- if five years of the term of the lease have already expired, it is in accordance with the requirements of s14A(2) of the Retail Shops Act.
If the first five years of the term of your lease have expired and the landlord wishes to redevelop the premises, the lease will need to provide for the following:
- the tenant’s business cannot be relocated unless the landlord has given the tenant at least 6 months written notice (relocation notice);
- the relocation notice gives details of an alternative retail shop (alternative shop) to be made available to the tenant, and if the lease is for a retail shopping centre, the alternative shop must be situated in the shopping centre;
- the tenant must be offered a new lease of the alternative shop on the same or better terms and conditions as the existing lease;
- the landlord is to pay the tenant’s reasonable costs of the relocation (including packing, removal, dismantling and reinstatement of fittings and legal costs incurred by the tenant); and
- if the landlord does not offer or is unable to offer the tenant a new lease of an alternative shop, then the landlord is liable to pay the tenant such reasonable compensation as is agreed between the parties or determined by the State Administrative Tribunal.
Top 5 Tips if your landlord wants to redevelop
- Check the terms of your lease, specifically the redevelopment or relocation clause
Check to see that the redevelopment notice provided by the landlord complies with the relevant clause under the lease, and whether that clause is valid under the Retail Shops Act.
- Understand what the landlord is proposing (i.e. relocation to an alternative premises or compensation)
Take the time to review what the landlord is proposing in the redevelopment or relocation notice, whether that is relocation to another premises or termination of the lease with compensation payable to you.
- Consider your options – you may have wanted to relocate or end the lease early anyway
Being provided with a relocation notice may present you with the opportunity to move to better premises. If you have received notice that the landlord intends to terminate the lease for redevelopment, you may have wanted to terminate the lease early anyway.
- Determine what financial impact relocation to other premises, or termination of the lease if no alternative premises are available, will have on your business.
If the landlord does not offer you a new lease of an alternative shop, you will need to negotiate reasonable compensation for termination of the lease. If you cannot reach an agreement, the amount of compensation from the landlord may be determined by the State Administrative Tribunal.
- Obtain independent advice from legal, commercial leasing and financial advisers
Advice from professional advisers will assist you in deciding what course of action to take and how to best negotiate relocation to other premises or termination of the lease with the landlord.
We have experienced lawyers at HHG Legal Group who can assist you with retail leasing matters. Please contact Anne Hurley or Oscar Dell’Anna at HHG Legal Group’s Business and Property team on (08) 9322 1966 with your queries.