Insights

If you are renting out a shop, office, warehouse or any type of business premises in Western Australia, you will usually sign either a commercial lease or a retail lease. While they may look similar, the two leases are very different, and mixing them up can lead to legal problems, extra costs, or disputes between landlords and tenants.

At West Perth Legal, we help business owners and landlords draft leases that comply with WA laws and protect their long-term interests. This article explains the difference between commercial and retail leases in a simple and clear way, and why it is important to choose the correct lease from the start.

1. What Is a Commercial Lease?

A commercial lease is a lease for premises used for general business purposes that are not considered retail.
Common examples include:

• Offices
• Warehouses
• Factories
• Industrial units
• Workshops
• Professional suites, depending on the permitted use, location and whether the premises fall within the statutory retail shop lease definition

Commercial leases are mostly governed by the general law and the lease agreement itself, meaning the terms are heavily based on what the parties agree.

There are fewer statutory protections, which means:

• The landlord and tenant can negotiate almost anything
• There is more flexibility
• But also more room for risk if the lease is not drafted carefully

This is why drafting is critical.

2. What Is a Retail Lease?

A retail lease in Western Australia is not determined only by whether a business sells goods or services directly to the public. It generally depends on whether the premises fall within the statutory definition of a retail shop lease under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the Act), including factors such as the premises’ use, whether they are in a retail shopping centre, whether the business is a prescribed specified business, and whether the lettable area is within the statutory limit.

Examples include:

• Cafés
• Restaurants
• Food outlets
• Hairdressers
• Beauty salons
• Clothing shops
• Gift shops
• Pharmacies
• Convenience stores
• Most shops in shopping centres

The Act adds mandatory rules to promote transparency and fairness in retail shop leasing. For landlords, this usually means additional disclosure, cost recovery, rent review, assignment, renewal and dispute resolution requirements. Parties generally cannot contract out of these statutory protections.

3. Key Differences Between Commercial and Retail Leases

A. Extra Protections for Retail Tenants

Retail tenants may receive special protections under the Act, including requirements and restrictions relating to:

• Disclosure statements and the tenant guide
• Outgoings, operating expenses, sinking funds and marketing funds
• Rent review mechanisms and limits on certain rent review provisions
• Minimum term, assignment, relocation, refit and legal cost provisions
• Dispute resolution through the Small Business Development Corporation and, if unresolved, the State Administrative Tribunal

Commercial tenants do not receive these protections.

B. Outgoings and Costs

In retail leases, landlords should ensure that outgoings and other recoverable costs are clearly disclosed and permitted by both the lease and the Act:

• The disclosure statement should identify the outgoings and estimated costs the tenant may be required to pay
• Some categories of landlord costs are regulated and may not be recoverable unless the lease and the Act allow recovery
• Outgoings must be clear and transparent

In commercial leases:

• Costs and outgoings can be negotiated more freely
• The landlord can often recover more expenses

C. Rent Reviews

Retail leases have specific rules about:

• How rent can be reviewed
• When reviews can occur
• Whether a particular rent review provision is void or restricted under the Act

Commercial leases have greater freedom in rent review methods.

D. Dispute Resolution

Retail lease disputes commonly involve:

• Referral to the Small Business Development Corporation for assistance or dispute resolution

If the matter is not resolved, an application may be made to the State Administrative Tribunal where the Act allows it.

Commercial lease disputes usually go straight to:

• Negotiation
• Mediation
• Court (if needed)

E. Disclosure Requirements

Retail leases generally require prescribed pre-lease disclosure documents, including:

• A formal disclosure statement in the prescribed form
• The tenant guide and information about expenses, rights and obligations

Commercial leases do not require this unless agreed between the parties. If the required retail lease disclosure is not provided, or if it is incomplete or misleading, the tenant may have statutory rights, including termination and compensation rights in some circumstances.

F. Minimum Term

Many WA retail shop tenants are entitled to a lease term of at least five years, unless an exception applies or the tenant validly elects a shorter term in the manner required by the Act.

4. Why It Matters to Get the Lease Type Right

Choosing the wrong type of lease can cause serious legal and financial consequences.

If a retail lease is incorrectly treated as a commercial lease:

• The lease may be invalid in parts
• The landlord may have breached disclosure, cost recovery, rent review or minimum term requirements under the Act

• The tenant could dispute rent or outgoings
• The landlord could be forced to refund costs
• Disputes may take longer and cost more

If a commercial lease is incorrectly treated as a retail lease:

• Unnecessary rules may be applied
• The landlord may lose negotiation flexibility
• The property may end up less profitable

Knowing which category applies, before drafting the lease, protects both sides and avoids legal trouble.

How West Perth Legal Helps Landlords and Business Owners

We assist with:

• Drafting commercial leases tailored to office, industrial and warehouse use
• Drafting retail leases

• Reviewing outgoings, rent review clauses and disclosure statements
• Advising which type of lease applies to your business
• Preparing lease variations, renewals and assignments
• Registering leases with Landgate

A well-drafted lease protects your rights, income, property value and future negotiations.

Contact West Perth Legal today for clear, fixed-fee advice on commercial and retail leases in Western Australia.

Protect your property. Protect your business. Protect your income.

Disclaimer: the content of this article is provided as general information only and does not constitute legal or other advice on any specific matter and should not be relied upon as such. If you are seeking or require legal advice, please contact our lawyers.