The Retail Leases Act (NSW) (the ÒActÓ) and similar legislation in other states govern retail leases, granting valuable rights to you as a lessee and imposing various obligations on the lessor both before the lease is entered into and during the lease term.

Under the Act, the landlord must have a draft lease available for inspection before you are offered a lease. Each prospective lessee must be provided with a copy of the retail tenancy guide, explaining your rights as a lessee, when negotiations are entered into.

The landlord must also provide you with a Disclosure Statement at least seven days before you enter the lease or occupy the premises, summarising the lease terms and setting out additional information about the premises. Importantly the Disclosure Statement will provide an estimate and a break down of the outgoings you must pay under the Lease. If the landlord fails to give you a Disclosure Statement within this time you may be able to terminate the lease at any time within the first six months. Additionally, if you find that the Disclosure Statement failed to mention important issues or if it was in some way defective, you may be entitled to seek compensation from the landlord.

Under the Act, the lease term including any option to renew must be for a minimum of five years unless a solicitor has issued a certificate under s16(3) of the Act. If there is no such certificate the lease term is automatically increased to five years. The Act also restricts the method of rent review in that the lease may not have terms preventing the rent from decreasing – for example if the method of rent review caused the rent to decrease below previous levels. The Lease also cannot prescribe that you pay the higher of two alternate methods of rent review.

In NSW the landlord cannot pass on to a lessee the costs of preparing the lease. There are certain exceptions to this, for example landlords may pass on the ÔreasonableÕ legal costs for amending the lease at the lesseeÕs request, after the lessee has given the lessor a copy of the lesseeÕs disclosure statement.

As the lease is a legally binding contract which imposes upon the lessee significant obligations, the lessee must examine the document carefully, understand the terms and conditions and consult a lawyer for advice. Entering into a lease agreement that has unfavourable terms may have significant ramifications throughout the term of the lease, affecting the success of the franchise business.

Important things to look out for:

* The Permitted Use of the premises must correspond to the main use to which you intend to use the premises;

* Ensure the lease term and any options to renew coincide with the term of your franchise. For example it is unwise to enter into a three-year lease if you are entering into a five-year franchise agreement. In our experience, many shopping centre leases do not provide for an option to renew which poses problems at the end of the lease term;

* Check if the lease is assignable in the future as you may wish to sell your business before the lease term expires;

* Total payments under the lease. You should carefully consider whether your business will be able to afford the payments under the lease, both now and in the future;

* Consider the amount of rent payable and understand the timing and calculation of rent increases. You should also ascertain the amounts of any additional payments required such as insurance, maintenance, marketing fees, fit-out costs, percentage rents and outgoings or shared operating expenses as outlined in the Disclosure Statement;

* Ensure that all representations made to you by the landlord have been reflected in the terms of the lease.

* Before you sign the lease you should finally check with the Franchisor to ensure that there is nothing in the lease terms which would contravene your obligations under the Franchise Agreement.