Most Tenants of industrial properties would prefer that their lease fall under the Act, while most Landlords would prefer NOT to be subject to the extra rules imposed by the Act. Why is this so? And what Act are we referring to?

There are at least 5 important reasons and one or all of these reasons could apply to your current lease. Ignore these at your own peril!

Reason 1: A Tenant is entitled to a minimum 5 year term.

Section 21(1) of the Retail Leases Act states that “The term of a retail premises lease, including any further term or terms provided for by an option for the tenant to renew the lease, must be at least 5 years…”

Reason 2: The Tenant is responsible for the costs of Essential Safety Measures.

With the amendment to the Act in 2020 the term outgoings includes the cost, or part of the cost, of repairs or maintenance work in respect of an essential safety measure or an installation. Examples: sprinkler systems, fire exit signage, smoke detectors, annual safety inspections, etc.

Please note that the lease and disclosure statement will need to reflect that this is an outgoing the tenant has agreed to pay and include an estimate of these costs just like all other outgoings.

Reason 3: Any “ratchet” clause that prevents rent from decreasing following a rent review.

Section 35 (3) of the Act states that “A provision in a retail premises lease is void… [if it prevents]…the reduction of the rent or to limit the extent to which the rent may be reduced.”

Reason 4: Lease Assignment restrictions that are unreasonable

Terms in the lease that do not conform with the provisions in the Act for assigning a lease would be deemed unreasonable. Under the Act, a Landlord is only entitled to withhold consent to an assignment in the circumstances set out in Section 60 (1).

Furthermore, unlike a retail tenant who may be entitled (under the Act) to an automatic release from the assignment date, a non-retail tenant will typically remain liable for any breaches by the incoming tenant for the remainder of the current lease term unless a specific release is negotiated in the assignment document.

Reason 5: The Landlord can recover Land Tax from the Tenant

The Act clearly prohibits the landlord from passing land tax on to the tenant. Section 50 (1) states “A provision of a retail premises lease is void to the extent that it makes the tenant liable to pay an amount for tax for which the landlord or head landlord is liable under the Land Tax Act 2005.”

So is your industrial property considered retail premises?

Section 11 of the Act states that the Act applies to retail premises leases. Section 4 of the Act provides that a “retail premises” is a premises used for “the sale or hire of goods by retail or the retail provision of services”.

It may seem illogical that a warehouse or a factory is considered retail premises and their lease is subject to the Act. But to determine whether your industrial premises is “retail” or not, apply the “Ultimate Consumer Test”.

The “Ultimate Consumer” is a person or a business that uses goods or services supplied by the Tenant at the premises for personal consumption or as an input in the business.