Leasing for retails versus office spaces

If you are planning to lease out premises for your business, then you may know the term retail lease and commercial lease. Do you know the difference? Retail leases will differ from the commercial leases because they will have different regulatory frameworks. Here we show the differences between a commercial lease and a retail lease.

What exactly is a lease?

A lease is just a contract that sets out the obligations and the rights of the landlord or the lessor along with the person or entity who will become the tenant and occupy the place.

Commercial leases

The commercial leases often apply to those fit-outs that are an industrial site and are used as a warehouse or an office that is located in a commercial building that doesn’t have any retail activities. People would consider leasing the commercial property for their interior design or hiring the corporate venue for a short- or long-term period. The difference here is the use of premises that are in the form of selling and buying to the public must take place at those premises.

Commercial lease features

The retail versus commercial lease distinction is most often blurred out for the business that will provide a service and the test then relies on the location. It is mostly used for commercial businesses or to serve as a formal venue for business events.  Business premises will then be considered retail and if the premise location is found in the shopping centre.

In a lease there will be clauses for the following:

• Rent increases
• Payments of rent
• Maintenance and repairs

With commercial leases, the extent of the liability of the tenant will depend on how their ability to negotiate for a level playing field actually is. Unlike retail leases where the retail legislation suggests the majority of leasing provisions.

Retail leases

When it comes to a retail lease of a business property it is permitted for the use of selling goods. The shop business premises are located often in shopping centres and are protected by the state-based retail Acts.

A rule is if the premises are found in a shopping centre where five or more shops are found and are mainly used for good or services then there may be an arrangement that will fall under the state or territory leasing acts.

There are different exceptions to what is considered a retail lease such as:

• The size of the business is over 1,000 square metres
• The lease is for 25 years or over
• A shop that operates inside a bowling alley or cinema

.

When do you go into a retail lease?

You need to know that you are in a retail lease as the landlord will be subject to extra obligations. Under the retail lease act (NSW) your retail lease commences when the person who is entering into possession of the retail store starts to pay rent as a lessee listed under the lease. If there has been no possession taken yet, then the lease will commence as soon as the parties then execute the lease.

There are many similarities between the two leases but there are still legal differences. Don’t make any assumptions until you have fully read everything and understand it to the fullest.

Be aware of the differences and similarities and understand the lease you are taking on to know what your obligations are and how you should be executing those.