retail lease disputes

3 Lessons about Retail Lease Disputes

Retail lease disputes in Victoria and around Australia commonly arise in shopping centres in relation to relocation, exclusivity, fit out requirements, turnover rental, promotion funds and signage.

For other shops, shared parking and repairs and maintenance are often the cause of argument. Old air conditioning units that are constantly malfunctioning test the understanding of the distinction between maintenance and replacement with neither party wishing to incur any cost.

In professionally run centres, parking is organised, replacement tenants are readily found and centre management administers rent and outgoings and contributions to promotion and advertising in a professional fashion.

Early possession of the shop

A common dispute occurs when the lessee (commercial tenant) is given possession before completion of the documentation. Having got what the lessee wants, namely possession, the incentive to sign the documents is lost.  If you are a commercial landlord in this situation you could have a big headache on your hands either getting the tenant out or getting them to agree to the original proposal and finalising a legally binding lease.

Options with payment of  rates insurance and other outgoings

With leases of shops by mum and dad owners the administration often falls behind and contributions to outgoings or CPI increases in rentals are often overlooked.  If the landlord or their agent do not act quickly and pursue what is owing for months or even years after the event, it will more than often cause unresolved conflict and trouble.  Including the outgoings in the rental and providing for payment of all outgoings other than consumables by the lessor will help overcome this potential problem. However, consideration has to be given to the fact that whilst GST is payable on the rent, many outgoings do not attract GST. Additionally, outgoings do not necessarily increase by the same amount that rent increases. Some landlord agents will claim (and correctly with the back up of an ATO ruling)  that if it is invoiced separately and paid through them, then the tenant is liable to pay GST on outgoings.

Lessons learned:

  1. For tenants: consider incorporating the cost of outgoings as part of the rent amount and the landlord otherwise pays the outgoings;
  2. For landlords: never give possession of the premises until a binding lease that has been carefully thought out and drafted by a lawyer (acting in your interests, not the tenants) is signed by the tenant;
  3. For both: seek legal advice at the earliest opportunity when negotiations have commenced and not after mental goalposts have been set by each of you.

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