Do you own and operate a business from a leased property? Are you a commercial landlord? Do you know whether your lease is a Retail or Commercial Lease? Do not worry if you are unsure, most small business owners are unaware of the differences between the two.
We outline some of the key differences between a Commercial and Retail Lease .
Commercial leases will usually apply to large scale operations such as a business or premises that is used for warehousing or storage or a commercial building without retail activity.
Commercial leases are not governed by any specific legislation. They can vary greatly from premises to premises, landlord to landlord and managing agent to managing agent. Consequently, commercial leases may be very one sided (more often than not, favouring the landlord) and your liability under the lease will greatly depend on you (or your solicitor’s) ability to negotiate favourable terms.
The provisions in a commercial lease will ordinarily address such matters as:
A retail lease is usually granted for premises where the permitted use of the premises is predominantly for the sale and supply of goods and/or services.
Retail leases are structured and are regulated (in Victoria) by the Retail Leases Act (Vic) 2003 (“the Act”). In comparison to a commercial lease, the Act harmonises the playing field between the landlord and tenant in the following ways:
The issue of whether a lease of a premises is commercial or retail had, until 2017, been a contested issue and the subject of debate between landlords and tenants.
It has always been advantageous for a landlord to enter into a “commercial” i.e., non-retail lease. Under a commercial lease the landlord would, amongst other things, be entitled to recover from the tenant expenses such as:
A 2017 Supreme Court of Victoria  decision assisted in determining whether a lease for a premises is a retail or commercial lease. In that case, the tenant was operating a cold storage business from the rented premises. A dispute arose between the landlord and tenant regarding the tenant’s liability to pay land tax and outgoings exceeding $160,000.00. The matter was litigated in the Victorian Civil and Administrative Tribunal (VCAT) where it was found that the lease in relation to the premises was commercial. It was decided at VCAT that the tenant was liable for the outgoings including land tax.
The matter was subsequently appealed to the Supreme Court of Victoria. It was determined that the lease in respect of the premises was in fact a retail lease and therefore the tenant was afforded the protection of the Retail Leases Act (Vic) 2003. In making its decision, the court applied what is now known as “the ultimate consumer test”. The ultimate consumer test is where the person acquiring the good or service is the ultimate consumer of that good or service. In this case it was determined that the service provided by the tenant was a retail service, as the ultimate consumers were those providing their goods to be placed in cold storage.
If you think your lease has been misclassified and require assistance, please contact us to provide advice on your individual circumstances.
Please note the above is intended to be commentary and general information only. Commentary and general information should not be relied upon or substituted as legal advice. Formal legal advice should always be obtained. We have significant experience and expertise in leasing. If you would like to get legal advice on your specific situation then please contact our office.
Each state has its own lease related legislation and we can provide advice on interstate leases. We have extensive experience in handling property, commercial and litigation matters.
1. Please note each State and Territory has its lease related legislation. This is intended for Victorian residents. We are able to advise on interstate leases. For a confidential discussion please contact our office on (03) 8397 500
2. CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd  VSCA 178
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