Retail Leases Act Victoria: key protections for tenants

The Retail Leases Act 2003 (Vic) is the main law governing retail leases in Victoria. It applies to most retail premises, including shops in shopping centres and strip retail locations. The Act aims to balance the relationship between landlords and tenants by setting minimum standards and disclosure requirements. If you’re a retail business owner, understanding these rules helps you avoid unfair terms and negotiate a lease that works for your business.

Does the Act apply to your lease?

The Act covers most retail leases in Victoria, but there are exceptions. It generally applies if:

• The premises are used wholly or predominantly for retail, and
• The lease is for a term of more than one year (including options), or the tenant has been in possession for at least one year.

Some businesses are excluded, such as those with annual rent above a certain threshold (adjusted periodically) or premises in office towers, industrial zones, or pop-up shops with leases under six months. If you’re unsure, check with your solicitor or a retail leasing consultant.

Disclosure statements: what you must receive

Before you sign a lease, the landlord must give you a disclosure statement. This document outlines key terms, including:

• Rent amount and how it’s calculated (e.g., fixed, turnover-based, or a combination)
• Outgoings (expenses like council rates, insurance, and maintenance)
• Lease term, including options to renew
• Any works the landlord will do before you move in
• Estimated costs for services like cleaning or security

The landlord must provide this at least seven days before you sign. If they don’t, or if the statement is incomplete or misleading, you may have grounds to terminate the lease or seek compensation. Always review the disclosure statement carefully and compare it to the lease document.

What to check in your disclosure statement

• Outgoings estimates: Ensure they’re reasonable and match the lease terms. Some landlords overestimate outgoings to inflate costs.
• Rent review method: Check if it’s fixed, CPI-based, or market-based. Market reviews can lead to sharp increases.
• Landlord works: Confirm what the landlord will do before you take possession (e.g., fit-out contributions, repairs).
• Exclusivity clauses: If the landlord promises not to lease nearby space to a competitor, ensure this is clearly stated.

Outgoings: what you can and can’t be charged

Outgoings are costs the landlord passes on to tenants, such as council rates, insurance, and maintenance. The Act limits what landlords can charge and requires transparency. Key points:

• Landlords must provide an annual estimate of outgoings at the start of each year.
• They must also provide an annual statement showing actual outgoings within three months of the financial year’s end.
• You can request an audit of outgoings if you suspect overcharging. The landlord must cover the audit cost if the charges are found to be incorrect.

Some costs cannot be passed on to tenants, such as:

• Landlord’s legal fees for preparing the lease
• Capital works (e.g., structural repairs or upgrades)
• Costs related to other tenants (e.g., marketing for the centre)
• Penalties or fines incurred by the landlord

If your lease includes prohibited outgoings, you’re not obliged to pay them. Review your lease and outgoings statements carefully to ensure compliance.

Rent reviews: how they work and how to negotiate

Rent reviews determine how your rent changes during the lease term. The Act allows three main types of rent reviews:

• Fixed percentage increases: Rent increases by a set percentage (e.g., 3% annually). This is predictable but may not reflect market conditions.
• CPI-based increases: Rent adjusts based on the Consumer Price Index. This ties rent to inflation but can lead to higher increases in high-inflation periods.
• Market reviews: Rent is adjusted to reflect current market rates. This can lead to significant increases, especially in high-demand areas.

The Act prohibits ratchet clauses, which prevent rent from decreasing during a market review. If the market rent is lower than your current rent, your rent should decrease. However, landlords often resist this, so it’s important to negotiate terms that protect you from excessive increases.

Negotiating favourable rent review terms

• Cap market reviews: Propose a cap on annual increases (e.g., no more than 5% per year).
• Avoid CPI + fixed increases: Some leases combine CPI and fixed increases, leading to double-digit hikes. Push for one method only.
• Request a rent-free period: If market reviews are unavoidable, negotiate a rent-free period to offset potential increases.
• Get a valuer’s opinion: Before agreeing to a market review, obtain an independent valuation to ensure the proposed rent is fair.

Lease termination and make good

The Act sets rules for ending a lease and your obligations when vacating the premises. Key points include:

• Termination by the tenant: You can terminate the lease if the landlord fails to provide a disclosure statement or if the statement is misleading. You may also have termination rights if the landlord breaches the lease.
• Termination by the landlord: Landlords can terminate the lease for breaches like unpaid rent or unauthorised use of the premises. However, they must follow the process set out in the Act, including giving you notice and an opportunity to remedy the breach.
• Make good: Most leases require you to return the premises to its original condition at the end of the lease. This can include removing fit-outs, repairing damage, and repainting. The Act limits make good obligations to what’s reasonable. For example, you shouldn’t have to restore the premises to a better condition than when you took it over.

Reducing make good costs

• Negotiate the scope: Push for a clause that limits make good to “fair wear and tear” or excludes certain works (e.g., repainting if the walls are in good condition).
• Document the condition: Take photos and videos of the premises before moving in to avoid disputes over damage.
• Get quotes early: Obtain quotes for make good works well before the lease ends to budget and negotiate with the landlord.
• Consider a cash settlement: Some landlords prefer a cash payment instead of physical works. This can save you time and hassle.

Dispute resolution: what to do if things go wrong

Disputes between tenants and landlords are common, but the Act provides a clear process for resolving them. The first step is usually negotiation or mediation. If that fails, you can take the matter to the Victorian Civil and Administrative Tribunal (VCAT). VCAT is a low-cost, accessible forum for resolving retail lease disputes.

Common disputes and how to handle them

• Unpaid rent: If you’re struggling to pay rent, communicate with the landlord early. They may agree to a payment plan or rent reduction.
• Outgoings disputes: If you suspect overcharging, request an audit. The Act allows you to withhold payment of disputed outgoings until the matter is resolved.
• Lease renewal: If the landlord refuses to renew your lease, check if you have an option to renew and whether the landlord has followed the correct process.
• Make good disputes: If the landlord demands excessive make good works, provide evidence of the premises’ original condition and negotiate a fair outcome.

If you’re facing a dispute, seek advice from a retail leasing consultant or solicitor before taking action. Elite Retail Leasing specialises in helping tenants navigate disputes and negotiate favourable outcomes.

Frequently asked questions

Talk to a Melbourne retail leasing consultant

Elite Retail Leasing acts for retail tenants across Australia on new sites, renewals, lease negotiations, surrenders and expansion planning. If any of the above applies to your business, get in touch.

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