If you’re a tenant seeking commercial space, or a landlord leasing commercial space, note that the policy of the Retail and Commercial Leases Act 1995 is to give commercial tenants a minimum of 5 years, whatever the lease says.
Sections 20B (1) and (2) of the Act state:
“(1) The term for which a retail shop lease is entered into must be at least five years.
The term of a retail shop lease is worked out under this section on the assumption that any right or option of renewal or extension under the lease or a collateral agreement will in fact be exercised. However, a right or option of renewal or extension will not be taken into account if it is given after the lease is entered into.
(2) A lease is not invalidated by contravention of this section but the term of the lease is extended to bring the term (or aggregate term) to five years.
Example— If a lease is entered into for a term of three years, its term is extended by two years to five years. If a lease is entered into for a term of two years with an option for a further one year after that initial two years, the term of the lease is extended to four years (with the option for a further one year after that initial four years).”
The Supreme Court has held that “the intention [of the section] is to provide a minimum term of five years for a retail shop lease.”
There are exceptions: fixed term lease of only 6 months or less; a period under 6 months of holding over after the lease ends; where the tenant has already been at the premises for at least 5 years; where the lease contains an “exclusionary term” which excludes the operation of s. 20B of the Act and the tenant obtains a lawyer’s certificate stating the tenant understands the effect of the exclusionary term; a sublease and certain short term leases to non-profit bodies; and leases to close family members.
Check with us before cutting your lease deal! Otherwise, the lease period may be longer than you thought (or wanted).