When entering into a retail lease, prospective lessees must carefully scrutinize refurbishment, redevelopment, and relocation clauses. The ability of a lessor to undertake redevelopment or require a tenant to relocate, particularly in retail shopping centres, poses a significant risk to lessees. Before signing on the dotted line, it is essential to understand the implications of these clauses and their potential impact on business operations.
The Reality of Redevelopment and Relocation Clauses
Retail leases, especially those prepared by large lessors such as Westfield and Stockland, almost always contain redevelopment and relocation clauses. These clauses may:
- Detail a specific redevelopment plan or remain general in their scope.
- Almost always entitle the lessor to proceed with refurbishments that may require vacant possession.
- Allow the lessor to relocate a tenant’s premises to another location within the shopping centre.
Even when a refurbishment or redevelopment does not directly affect a lessee’s premises, broader redevelopment within a shopping centre can be disruptive. Hoarding, closed entrances, construction noise, and general accessibility issues can deter foot traffic and significantly impact trade. Relocation clauses add another layer of uncertainty, as they may require tenants to move to a different shop, which could impact customer flow and business continuity.
Key Considerations for Lessees
Before committing to a lease, prospective tenants should carefully review:
- Redevelopment and Relocation Clauses: Understanding the specific terms related to refurbishment, redevelopment, and potential relocation is crucial.
- Applicable Retail Lease Legislation: For example, in NSW, Section 34A of the Retail Leases Act provides protections, including:
- The requirement for a genuine redevelopment proposal.
- A minimum of three months’ written notice before relocation.
- Entitlement to a new lease on equivalent terms or the option to terminate.
- Compensation for reasonable relocation costs.
While these statutory protections exist, they do not prevent lessees from negotiating more favourable terms.
- Disclosure Statements: In NSW, the prescribed disclosure statement requires the lessor to disclose planned alterations, including:
“17.1 Are there any alteration works, planned or known to the lessor at this point in time, to the premises or building/centre, including surrounding roads, during the term or any further term or terms?” - Compensation Clauses: Lessees should pay close attention to compensation provisions. Key considerations include:
- Will compensation cover lost trade?
- Will all expenses, including relocation and fit-out costs, be reimbursed?
- What legal avenues exist if disputes arise?
Seeking Legal Advice
Retail leases are complex, and redevelopment and relocation clauses can have a lasting impact on business viability. Engaging a lawyer before signing can help:
- Negotiate better lease terms.
- Clarify potential risks.
- Ensure adequate protections against disruptions.
By thoroughly reviewing the terms and seeking legal counsel, lessees can make informed decisions and mitigate the risks associated with refurbishment, redevelopment, and relocation clauses in retail leases.