Things to know about commercial leases - Retail or not

More and more sophisticated investors are considering commercial real estate as a viable investment strategy.

They have usually built a substantial asset base and are now looking for more cash flow in their investments.

Often, they buy smaller properties– such as a shop, strata office or perhaps an industrial warehouse – because the entry-level price for larger commercial premises is quite high.

Retail or not?

Many commercial leases are considered to be retail in nature (even if the premises is not a typical shop) because the tenant’s business is providing goods and services.

That means those leases are covered by their own legislation, the retail Leases Act 2003(Act), which can be a little tricky for the uninitiated to understand.

The Act imposes obligations on both parties but protects the tenant more if they are covered by the ACT.

For example, landlords can’t pass on certain costs to tenants in a retail lease, things like legal costs for preparation of the lease, land tax(which can be substantial for commercial property), or costs relating to essential safety measures.

And owners must provide prospective retail tenants with a Disclosure Statement which outlines important information about the lease and the occupancy costs including outgoings.

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Jason Gwerder
Friday, 23 July 2021

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