Retail leases are highly regulated in all Australian states and territories. As a result, landlords and tenants entering these types of legal arrangements should be aware of their legal rights and obligations under the terms of the lease.
Key money may be requested when entering or renewing a retail lease, which essentially means a non-refundable payment in exchange for securing the lease in addition to rent and bond. However, landlords are prohibited from requesting benefits on top of the rent in order to grant or assign a retail lease. Each state and territory have unique retail leasing legislation but the position on key money remains the same – it is illegal.
In NSW, section 14 of the Retail Leases Act 1994 prohibits the use of key money for retail and commercial leases. Landlords or agents must not ask, or accept, key money in exchange for granting, renewing, or preparing a lease. If any party is found guilty of seeking or accepting key money, they may be fined up to $11,000 and the lease will be found void to the extent that it requires such a payment.
On the contrary, landlords or agents are still entitled to receive upfront payments such as rent in advance, a bond or a director’s guarantee, payment for plant, equipment, fixtures or fittings that are sold by the landlord to the tenant,, in order to secure the lease. As the landlord bears the full cost of preparing the lease, they may also recover lease preparation expenses for significant amendments if requested by the tenant after returning it to the landlord.
If you are considering on entering a retail lease, you should seek legal advice to ensure:
- you agree to the terms of the lease;
- you understand your rights and obligations; and
- you can comply with your obligations under the lease.
If you would like any more information on retail leases, please contact a member of the Cheney Suthers team.
