ARA Leasing Issues for FY25

Purpose/Overview

The ARA’s Leasing and Franchising Committee members have pulled together their collective top Retail Leasing concerns/issues for FY2025 – being the matters that Retailers should currently look out for (on top of their usual commercial leasing requirements) when entering into new leases or renewing Leases.

Whilst the list is non-exhaustive, it serves as a quick guide for Retailers when considering Lease terms.

1. Heads of agreement and disclosure statement:
   1. These documents need to be carefully considered. There will be a catch all line in the heads of agreement where the Landlord’s precedent document will apply.
   2. All key terms should be captured in the heads of agreement so there is better protection.
2. Rent and Fees:
   1. Review rent increase mechanisms – beware of CPI + X% rental increases.
   2. Review outgoings proposed carefully and check for hidden promotional levies, outgoings, fees and charges.
   3. Market Rent Review – understand the process. Are you comfortable with the market determining the rent for the further term? Is there a cap or collar (minimum or maximum) increase?
   4. Turnover rent – consider whether online sales are captured or to be excluded for the purposes of any turnover rent. Otherwise, should there be thresholds applicable.
   5. Ensure any outgoings have a process for a wash up whereby the Landlord’s estimated amounts and actual spends are not inconsistent. Consider a fixed percentage where the actuals are higher than the estimated.
3. Landlord Contributions:
   1. Be wary of the terms associated with Landlord Contributions, particularly timing for payments or requirements for submitting fitout contractor invoices to the landlord for payment.
   2. Consider whether these contributions are structured to be cash contribution to fitout, rent abatement or rent free periods. Noting contributions to fitouts may impact ownership of the fitout during the term of the lease or on expiry.
   3. Ensure penalty provisions are not included whereby Contributions are put on held or otherwise “clawed back” on a fixed % basis for assignment or early exit other than for default.
   4. Ensure it is clear who owns your fitout? Check that the depreciation regime captured in the document is consistent with the tenant’s accounting requirements.
4. Bank Guarantee/Security:
   1. Avoid personal guarantees wherever possible.
   2. Seek to reduce bank guarantees as low as possible, attempting to have these tied to base rent only (and not outgoings or other variable numbers).
   3. Request notice before the landlord can call on the bank guarantee.
   4. Limit the obligation to ‘top up’ the bank guarantee amount to scenarios where the landlord has called on the bank guarantee and not on an interval basis (i.e. where rent and outgoings have increased).
   5. Ensure you negotiate the timing for bank guarantee return on exit and seek to limit the expiry date on the bank guarantee.
   6. Consider other options such as an e-guarantee or that the guarantee can be provided by way of an insurance bond.

5. Assignment:
   1. Ensure you are aware as to the ability to assign the Lease before expiry.
   2. What are the requirements for approval of an assignee?
   3. Is assignment restricted only to an identical permitted use? If so, consider a more broadly defined permitted use.

6. Competitor Rents:
   1. Ensure you understand the rent per sq/m for like Premises within a Shopping Centre.
   2. Be wary of relying on Lease searches – side deeds and incentive deeds are common.
   3. Speak to other Tenants and advisors.

9. Maintenance, Repair, Refurbishment and Make Good:
   1. Carefully review your maintenance and repair obligations. Pay particular care to air conditioning and fire services etc. (Category One Costs – are they capped or uncapped? They should be capped)
   2. Understand your refurbishment obligations – are these fixed at a certain interval or on a “reasonably required” basis.
10. Make Good
    1. Understand and take note of the condition of the Premises at handover. Be clear up front as to what the expectations are at lease expiry, and exactly what you are required to do on exit. Having a condition report attached to the lease will ensure there is limited room for argument as to the condition of the premises at the commencing date (especially when dealing with multiple options).
    2. Consider whether a right to request a payment in lieu of make good should be requested i.e. landlord to obtain competitive quotes and on provide.
11. Retail Crime: Understand the security practices adopted by Landlords – both in terms of physical security, CCTV and alarms etc.

The contents of this article are a guideline only and not a substitute for legal advice.