Plenty of landlords and tenants sign a document with the words “commercial lease” printed across the top, shake hands, and walk away confident they know exactly what they have agreed to.

Then something goes wrong, a rent review, an outgoings bill, or a dispute over repairs, and they discover the law may treat their arrangement very differently from what the title page suggested.

If that sounds like a technicality, it is not.

It can affect:

• Who pays for what.
• How rent reviews work.
• Whether certain costs can be recovered from the tenant.
• How long the tenant is entitled to stay.
• Where any dispute must be resolved.

The key takeaway is simple: Whether a lease is a retail premises lease is determined by legislation, not by what the document is called. A lease can describe itself as “commercial”, but if it meets the definition under the Retail Leases Act 2003 (Vic), the Act applies.

First Things First: What Makes a Lease a Retail Lease?

Under Section 4 of the Retail Leases Act 2003 (Vic), retail premises generally means premises (other than residential areas) used wholly or predominantly for:

• The sale or hire of goods by retail.
• The retail provision of services.
• A business determined by the Minister.

The first category is straightforward and includes businesses such as:

• Shopfronts.
• Cafés.
• Hairdressers.
• Clothing stores.
• Takeaway food businesses.

However, the retail provision of services is broader than many people expect. Victorian courts often apply the “ultimate consumer” test, meaning services provided to businesses can still be considered retail where the customer is the ultimate consumer.

As a result, premises such as offices, warehouses, logistics facilities and service-based businesses may also fall within the Act.

Importantly, the classification is assessed when the lease is entered into or renewed.

You Cannot Contract Out of the Act

This surprises many landlords and tenants.

Section 94 of the Retail Leases Act 2003 (Vic) renders void any lease provision that attempts to exclude or avoid the operation of the Act.

In plain English:

You cannot contract your way out of the Retail Leases Act.

Calling the document a “commercial lease” or including a clause stating the Act does not apply will not change the legal position if the premises satisfy the statutory definition.

When the Act Does Not Apply

Not every business lease is covered by the Act.

Common exclusions include situations where:

• Occupancy costs exceed the prescribed threshold.
• The tenant is a listed corporation or its subsidiary.
• The tenant occupies the premises as the landlord’s employee or agent.
• The lease falls within a Ministerial exclusion.

Occupancy costs generally include:

• Rent.
• Estimated outgoings.
• Other prescribed costs.

Because thresholds are updated periodically, they should always be confirmed before entering into or renewing a lease.

The Big Differences

A standard commercial lease is largely governed by the contract itself.

A retail lease, however, is subject to an additional layer of mandatory statutory protections.

These protections regulate disclosure, rent reviews, outgoings, landlord costs, dispute resolution and many other aspects of the tenancy.

1. Disclosure

Retail landlords must provide important documents before the lease is entered into, including:

• The proposed lease.
• The Victorian Small Business Commission information brochure.
• A Disclosure Statement.

Failure to provide accurate or timely disclosure may give tenants rights to withhold rent or, in some circumstances, terminate the lease.

There is no equivalent statutory disclosure regime for general commercial leases.

2. Minimum Term and Renewal

Retail leases include statutory protections regarding lease terms, renewal processes and option notices.

Landlords may also be required to remind tenants of renewal options within specified timeframes.

General commercial leases rely primarily on the wording negotiated between the parties.

3. Rent Reviews

Retail lease rent reviews are regulated by legislation.

For example:

• Ratchet clauses preventing rent reductions during market reviews are generally ineffective.
• Market rent reviews follow statutory procedures.
• A specialist retail valuer may determine market rent where parties cannot agree.

Commercial leases generally follow whatever rent review mechanism is contained in the contract.

4. Outgoings and Costs

This is one of the most significant commercial differences.

Retail landlords must provide annual estimates and reconciliations of outgoings.

The Act also prevents recovery of certain costs, including:

• Capital costs.
• Lease preparation costs.
• Costs of complying with the Act.
• Land tax.

Under a commercial lease, recovery of these costs depends almost entirely on the drafting of the lease.

5. Lease Preparation and Legal Costs

Retail landlords generally cannot require tenants to pay the landlord’s legal costs associated with negotiating, preparing or executing the lease.

Commercial leases may allow recovery of these costs where the contract provides for it.

6. Repairs and Maintenance

Retail landlords carry statutory obligations to maintain and repair the premises.

Commercial leases rely primarily on the contractual allocation of repair responsibilities.

7. Security Deposits

Retail lease security deposits must generally be held in an interest-bearing account and returned within the statutory timeframe once the lease ends, provided the tenant has met their obligations.

Commercial leases usually leave these arrangements to the contract.

8. Key Money and Goodwill

Retail landlords cannot generally demand key money or goodwill payments.

Commercial leases are not subject to the same broad statutory prohibition.

9. Assignment

The Retail Leases Act provides a statutory assignment process designed to protect incoming tenants, outgoing tenants and guarantors.

Where the statutory process is properly followed, outgoing tenants may receive protection from future liability.

Commercial lease assignments are governed largely by the terms of the lease itself.

10. Shopping Centre Protections

Retail tenants in shopping centres receive additional protections covering matters such as:

• Core trading hours.
• Turnover reporting.
• Marketing and promotion contributions.
• Relocation rights.
• Other shopping centre obligations.

Commercial leases only provide these protections where they have been specifically negotiated.

Sorting Out Disputes

Retail lease disputes generally begin with the Victorian Small Business Commission before progressing to VCAT.

The Commission may also appoint specialist retail valuers where required.

Commercial lease disputes instead follow the dispute resolution process contained in the lease or proceed through the courts, depending on the circumstances.

Why It Matters

The most important question is not what the lease is called, it is whether the premises satisfy the statutory definition of retail premises.

A lease labelled “commercial” may still be subject to the Retail Leases Act and all of its mandatory protections.

The differences commonly affect:

• Cost recovery.
• Disclosure obligations.
• Rent reviews.
• Repair obligations.
• Renewal rights.
• Assignment provisions.
• Security deposits.
• Dispute resolution.

Because thresholds, exclusions and Ministerial determinations can change over time, every lease should be assessed individually when it is entered into or renewed.

How Burns & Tinney Can Assist

At Burns & Tinney, we assist Victorian landlords and tenants with lease reviews, preparation, renewals, assignments and lease disputes.

If you are unsure whether your lease is governed by the Retail Leases Act 2003 (Vic), or would like it reviewed before signing, please contact our office to arrange an appointment.

It is far easier to address these issues before signing than after a dispute arises