Mr Zhang has found a shop in Box Hill for a nail salon, and the landlord's agent has sent a lease asking him to sign and pay a bond within three days. In Victoria, most shop leases are covered by the Retail Leases Act 2003: the landlord must give a disclosure statement and the proposed lease at least 14 days before the lease is entered into; the term, including options, is generally at least five years; rent can only be reviewed by one method; and the landlord cannot pass land tax on to the tenant. There is no need to be rushed into signing.
At a glance
- At least 14 days before the lease is entered into, the landlord must provide the disclosure statement, the proposed lease and the Victorian Small Business Commission (VSBC) tenant information brochure.
- The term including options is generally at least five years, and a tenant can obtain a VSBC certificate to waive this protection.
- Rent review clauses can use only one method; mixed methods are not allowed.
- The landlord must provide annual estimates and reconciliations of outgoings; land tax generally cannot be recovered from the tenant.
- Most retail lease disputes must go to the VSBC for mediation before they can be heard at the Victorian Civil and Administrative Tribunal (VCAT).
1. Which leases are covered
The Act applies to premises used wholly or mainly for selling goods by retail or providing services to the public, such as restaurants, bubble tea shops, beauty salons, retail stores and many clinics. Whether it applies depends on how the premises is actually used, not what the lease is called. Some leases are excluded, for example where the tenant is a listed company or where rent plus outgoings exceeds a prescribed amount. If unsure, check the VSBC's information or get legal advice.
Even where a lease is covered by the Act, the lease terms themselves still matter. The law sets only minimum protections; the rent, rent-free periods, fit-out contributions, trading hours and permitted use are still negotiated between the parties. Settling the key commercial terms before signing is often more effective than relying on the law afterwards.
2. Before signing: the disclosure statement
The disclosure statement must be in the prescribed form and set out the rent, estimated outgoings, the term, options, the facilities and fit-out the landlord will provide, fit-out costs the tenant must bear, and shopping centre trading information where relevant. Tenants should check every item against the lease and make sure any verbal promises are written into the lease. If the disclosure statement is false, misleading or materially incomplete, the tenant can take legal action, which in serious cases may lead to the lease being terminated. When an option is exercised or a renewal is agreed, the landlord must again provide a disclosure statement as required.
3. Lease term and rent reviews
The term including options is generally at least five years; a tenant who wants a shorter lease must obtain a VSBC certificate before entering the lease, usually supported by independent legal advice. A rent review clause may use only one method: a fixed percentage, a published index such as the Consumer Price Index (CPI), a fixed amount, or current market rent. A clause mixing methods, such as “CPI or 5 per cent, whichever is higher”, may result in that review being conducted at market rent instead. If a market rent review is disputed and the parties cannot agree on a valuer, the VSBC can appoint a specialist retail valuer to determine the rent.
4. Outgoings and other costs
If the lease requires the tenant to contribute to outgoings, such as council rates, water, insurance, cleaning and management fees, the landlord must provide an estimate before each accounting period and a reconciliation afterwards; the tenant does not have to pay until the estimate is given. Land tax generally cannot be passed on to the tenant, and capital costs cannot be charged as outgoings. The Act also prohibits landlords from charging key money. Security deposits must be held as required and returned on time after the lease ends, and the cost of essential safety measures can only be charged if specified in the lease and disclosure statement.
5. Assignment and disputes
When selling a business and assigning the lease, the landlord cannot unreasonably refuse consent and can only rely on statutory grounds, such as the new tenant lacking financial resources or experience. According to the VSBC, if the landlord does not respond in writing within 28 days of a written request, consent may be taken to have been given. Once an assignment is properly completed, the outgoing tenant and guarantors are generally released from liability for the new tenant's defaults. If a dispute arises, apply first to the VSBC for mediation, which is low-cost and quick; if mediation fails, the matter can proceed to VCAT.
6. Checklist before signing
- Confirm you have received the disclosure statement, proposed lease and VSBC brochure, and that 14 days have passed.
- Check that rent, rent-free periods, fit-out contributions and estimated outgoings match what was negotiated.
- Check that the rent review clause uses only one method.
- Understand the demolition, relocation, make-good and personal guarantee clauses.
- Confirm the planning permit allows your use, and diarise the deadline to exercise your option.
Frequently asked questions
The landlord wants me to sign a letter of offer and pay a deposit first. Is that safe?
A letter of offer may not be binding in itself, but the refund conditions for any deposit should be clear. The formal lease still cannot be entered into until at least 14 days after you receive the disclosure statement.
I only want a two-year lease. Is that possible?
Yes, but you must obtain a VSBC certificate before entering the lease to waive the five-year minimum, which usually requires independent legal advice.
My landlord included land tax in the outgoings. Can I recover it?
For leases covered by the Act, land tax generally cannot be charged to the tenant. Ask the landlord in writing for a refund and, if disputed, apply to the VSBC for mediation.
Can I take a retail lease dispute straight to VCAT?
Generally no. Most retail lease disputes must first go through VSBC mediation and obtain the relevant certificate before applying to VCAT, except in situations such as urgent injunctions.
Chua Tan Associates has practised in Melbourne since 1990, advising businesses and investors in Mandarin, Cantonese and English on company set-up, buying and selling businesses, commercial leases, contracts and commercial disputes. For help, call 03 9602 3988 or contact us online. We can meet at our Melbourne CBD office or by video.
This page provides general information only and is not legal advice.
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