The retail leasing market in Australia is an area that has faced significant challenges, particularly in relation to the power imbalance between landlords and tenants. In this article, we will explore some of the main issues in retail leases and their impact on tenants and the broader retail sector.

One of the most significant issues in retail leases is the high cost of rent and outgoings. Retail tenants often face high rents and additional costs such as outgoings, which can include utilities, taxes, insurance, and maintenance fees. These costs can be a significant burden for businesses, particularly for smaller operators, and can make it difficult to operate profitably. Landlords, on the other hand, may be incentivized to charge high rents to maximize their returns on investment.

Another issue is the limited negotiation power that tenants have in retail lease agreements. Many landlords use their own prepared lease agreements that are heavily skewed in their favour, leaving little room for negotiation. This can leave tenants at a disadvantage, particularly in a market where rental demand is high, and the supply of suitable properties is limited. Tenants may be forced to accept lease terms that are not favourable to them, such as limited lease renewal options, high rent increases, and inflexible conditions around fit-out and alterations. Having a lawyer assisting with the
negotiation of the lease can help with obtaining more preferable conditions for tenants to decrease their obligations and costs under the lease.

Uncertainty around lease terms is another issue faced by retail tenants. Lease terms can vary widely depending on the landlord and the specific property, and tenants may face uncertainty around issues such as lease renewal options, rent reviews, and the ability to assign or sublease the premises.

This can create uncertainty for businesses and make it difficult to plan for the future. It is imperative that tenants are aware of the terms of the lease before they agree to them. Leasing lawyers can help provide tenants with a summary of the key lease terms so that are aware of their rights and obligations.

Maintenance and repair obligations are also significant issues in leases. While landlords are responsible for maintaining the structure of the building, tenants may be responsible for maintaining and repairing the premises, eg periodic maintenance of the air conditioning units. Tenants need to be aware that if there is no positive obligation on the landlord to perform certain repairs noted in the lease eg if the air conditioning system breaks then if the tenant requires such repair then they may have to spend more than they anticipated. This can be a significant burden for businesses, particularly for smaller operators who may not have the financial resources to cover unexpected repair costs.

It is advisable for tenants to do a thorough inspection of the building to ensure the building is in a good condition. Further, tenants should seek amendments in the lease to limit their obligations relating to maintenance and repair eg for air conditioning, they could ask that the landlord must repair or replace the system if it is reasonably required.

Limited protection under the law is another challenge for retail tenants in Australia. While the Retail Leases Act (different in each state) provides some protection for retail tenants, it may not go far enough to address the power imbalance between landlords and tenants. The Act provides guidelines around issues such as disclosure, rent reviews, and dispute resolution, but these guidelines are not always binding. In practice, this can leave tenants with limited recourse in the event of a dispute with their landlord.

Dispute resolution is another issue faced by tenants. Disputes between landlords and tenants can be time-consuming and expensive to resolve, particularly if the dispute involves complex legal or financial issues. This can be a significant burden for businesses, particularly for smaller operators who may not have the financial resources to engage legal representation.

In conclusion, while the Retail Leases Act provides some protection for tenants, it may not go far enough to address these issues and give adequate protection to tenants. It is recommended that tenants obtain legal advice from a lawyer who specialises in retail leases to obtain advice on their
lease and help to negotiate a more balanced lease that does not favour the landlord.