If you’re a tenant seeking commercial space, or a landlord leasing commercial space, note that the policy of the Retail and Commercial Leases Act 1995 is to give commercial tenants a minimum of 5 years, whatever the lease says.
Sections 20B (1) and (2) of the Act state:
“(1) The term for which a retail shop lease is entered into must be at least five years.
The term of a retail shop lease is worked out under this section on the assumption that any right or option of renewal or extension under the lease or a collateral agreement will in fact be exercised. However, a right or option of renewal or extension will not be taken into account if it is given after the lease is entered into.
(2) A lease is not invalidated by contravention of this section but the term of the lease is extended to bring the term (or aggregate term) to five years.
Example— If a lease is entered into for a term of three years, its term is extended by two years to five years. If a lease is entered into for a term of two years with an option for a further one year after that initial two years, the term of the lease is extended to four years (with the option for a further one year after that initial four years).”
The Supreme Court has held that “the intention [of the section] is to provide a minimum term of five years for a retail shop lease.”
There are exceptions: fixed term lease of only 6 months or less; a period under 6 months of holding over after the lease ends; where the tenant has already been at the premises for at least 5 years; where the lease contains an “exclusionary term” which excludes the operation of s. 20B of the Act and the tenant obtains a lawyer’s certificate stating the tenant understands the effect of the exclusionary term; a sublease and certain short term leases to non-profit bodies; and leases to close family members.
Check with us before cutting your lease deal! Otherwise, the lease period may be longer than you thought (or wanted).
For further information please contact Peter Jakobsen on 8362 6400 or email Peter. Join our mailing list to receive updates and advice on current issues.
