Commercial vs Retail Leases: What’s the Difference?

At face value, the differences between commercial and retail leases are easy to understand. Retail leases are used by businesses that sell goods or services to the public, whereas commercial leases have a broader range of uses such as being an office or a warehouse. However, there are some key differences in how they are regulated and negotiated.

Similar Obligations

The basic obligations of the tenant remain the same for both types of leases. These obligations include compliance with the permitted use clause (which is explained in more detail here), paying the correct amount of rent on time, reimbursing the landlord for the cost of utilities, providing a cash bond or bank guarantee, and repairing any damage done to the property.

Regulatory Differences

Retail leases offer more tenant protections than commercial leases. As such, they are heavily regulated by state-specific retail legislation. Retail leases offer tenant protections to address the power imbalance between landlords and tenants; retail landlords, such as owners of large shopping centres, typically have more bargaining power than tenants. This legislation can include rules such as:

• Landlords must provide tenants with a disclosure statement;
• Landlords are prohibited from charging tenants lease preparation costs;
• Limits are in place regarding how much a landlord can charge for a security bond; and
• Security of tenure, often a minimum lease period of five years.

The examples above are common tenant protections and are not exhaustive or definitive for your specific situation. As mentioned above, retail legislation varies from state to state. You will need to conduct further research on the specifics for your state or territory.

Differences in Negotiating Power

Commercial leases are not governed by such strict legislation and therefore offer more room for negotiation. Commercial leases offer more flexible terms that can be tailored to the specific needs of the landlord and tenant.

They are governed by state-specific commercial and property acts. These laws are usually only consulted if disputes arise. Contracts can usually be drafted between the tenant and the landlord without having to factor in mandatory legislative requirements.

If you have any questions about your commercial or retail lease, please do not hesitate to contact us. We are here to help.

DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.