When commercial landlords and tenants are in the process of negotiating a new premises lease, it is common for some initial agreement to be made in relation to the costs for preparation of lease documentation. This can often take the form of a clause contained within an estate agent’s proforma Lease Offer document.

In many cases, a landlord will seek to recover its lease preparation costs from the prospective tenant which is often perfectly reasonable and legal.

However, in Victoria (and in some other Australian states), where a lease is for ‘retail premises’ as defined in the Retail Leases Act 2003 (Act), section 51(1) provides that a landlord is not able to claim its legal or other expenses relating to the negotiation, preparation or execution of the lease.

The definition of ‘retail premises’ under the Act is fairly wide and often encompasses a variety of commercial premises – not just retail shops.  Whilst there are some exceptions, generally speaking it will include any premises where the sale or hire of goods or the provision of services to the general public is conducted.

Unfortunately, it is not uncommon for commercial landlords or agents to seek to recover these costs in any event by characterising the premises as not ‘retail’ or not covered by the Act because of, say, their semi-industrial nature or because of a Permitted Use in the lease which describes a use by the tenant which is different to the actual planned use.

Courts have often cast a wider net in interpreting what ‘retail premises’ comprises, including premises where goods and services are offered business to businesses (rather than the general public).

In addition to the prohibition on recovery of lease costs, the Act contains various other protections for tenants including:

  • A prohibition on seeking or accepting ‘key money’ (payment in exchange for the granting of a lease) or other payment for the goodwill subsisting in a premises– section 23; and
  • A prohibition on the recovery of land tax as part of premises outgoings – section 50.

Similar such protections exist in legislation in some other Australian states. In some cases, civil penalties are applicable to contraventions by landlords of the above prohibitions.

If you require assistance with the negotiation of your commercial lease or advice about what costs you can pass on as a landlord, contact us for on-point, practical leasing guidance.

Joseph Carneli
Senior Associate