Changes to Retail Leases Act in NSW and what they mean for Retail Landlords and Tenants: Insights from Property Law Expert, James Cooper

Two-minute summary

As of 1 January 2023, major changes to the Retail Leases Act 1994 (NSW) (the Act) mean that gyms, fitness studios (like yoga and pilates), and small bars (with capacity under 120 people) are now classified as ‘retail shops’ under the law. This means that new leases for these businesses must comply with the Act, giving tenants a range of statutory protections they didn’t previously enjoy.

Key benefits for tenants include:

• mandatory disclosure of lease terms and costs;

• restrictions on unfair rent increases;

• protection of cash bonds via the NSW Retail Bond Scheme;

• compulsory mediation before litigation; and

• a ban on certain ‘key money’ charges.

Landlords must now ensure full compliance, including using proper disclosure forms, refraining from charging impermissible fees, and following new rent review rules. Failing to do so could render lease terms unenforceable.

Importantly, while these changes don’t apply retrospectively to leases signed before 2023, mediation rights now apply to all leases, old and new. So, if disputes arise, tenants can access the NSW Small Business Commission for low-cost mediation before any court action.

The takeaway? If you're a gym or small bar operator, or lease premises to one, it’s vital to review your lease and understand your obligations. Legal advice is strongly recommended to ensure compliance and avoid risk.

Full Article

General Overview

1. What main changes were introduced to the Retail Leases Act 1994 (NSW) under the Retail Leases Regulation 2022 (NSW)?

The key change introduced in New South Wales by the Retail Leases Regulation 2022 (NSW), which commenced on 1 January 2023, is the expansion of the definition of 'retail shop' to now include gymnasiums, fitness centres (such as yoga, barre, and pilates studios), and small bars with a maximum patron capacity of 120 people.

Previously, landlords would typically offer these businesses commercial leases, with the effect that those tenants did not receive the statutory protections offered by the Act. As of January 2023, all new leases for these newly prescribed businesses fall under the Act, regardless of location - i.e. irrespective of whether or not they are located inside a retail shopping centre, in standalone premises, or an industrial zone.

Ultimately, this regulation provides more financial certainty and legal safeguards, ensuring that gym and small bar owners do not face unexpected costs or unfair lease conditions.

2. Why do you think the definition of ‘retail shop’ was expanded to include such businesses?

The expansion appears to align with the broader consumer-oriented nature of these types of businesses. They cater directly to the public, much like traditional retail shops, and often face similar financial and leasing challenges. Bringing such leases under the Act ensures that tenants in these industries receive the same legal protections as other retail businesses.

Legal Implications for Landlords & Tenants

3. What are the key protections for tenants now that gyms and small bars fall under the Act?

Statutory protections that now apply to the newly prescribed businesses include:

• transparent leasing process – landlords must provide a written disclosure statement outlining all lease terms and associated costs;

• protection from certain unfair lease terms – tenants can challenge unfair rent increases, and certain clauses (e.g., ratchet clauses) which are deemed void under the Act;

• clearer financial obligations and disclosure – landlords must disclose all outgoings (e.g., maintenance and cleaning fees, operational costs, strata levies);

• security deposit protections – If tenants provide a cash bond, it must be lodged with the NSW Retail Bond Scheme;

• mandatory mediation before legal action – if disputes arise, tenants now have access to low-cost mediation facilitated by the NSW Small Business Commission rather than going straight to court; and

• restrictions on key money payments – landlords cannot charge certain additional fees to secure a lease.

4. What should landlords be aware of before signing a retail lease to gyms and small bars?

Landlords need to ensure compliance with the Act, which includes:

• providing a completed disclosure statement before finalising the lease;

• understanding that certain costs (e.g., lease preparation fees) cannot be passed onto tenants;

• attending mediation before legal proceedings can be initiated;

• recognising that standard commercial lease clauses may now be overridden or rendered ‘void’ by the Act if they conflict with statutory protections; and

• ensuring that rental increases comply with the Act's restrictions (e.g., prohibiting certain review methods that only allow rent to move in an upward direction.

Compliance is critical because any term in a lease that conflicts with the Act will be deemed to be unenforceable, and landlords could face legal challenges if they do not adhere to the obligations as set out in the Act.

Existing Leases & Transitional Provisions

5. Does the Act apply retrospectively to leases signed before 1 January 2023?

No, the Act is not fully retrospective for leases signed prior to 1 January 2023. However, Part 8, Division 2 of the Act (mediation provisions) does apply to all leases, irrespective of when they were signed.

If a tenant’s lease was signed before 2023, they can now access mediation services for retail tenancy disputes through the NSW Small Business Commission. However, other protections (such as restrictions on outgoings and lease disclosure requirements) do not automatically apply to pre-2023 leases.

6. If a dispute arises between a tenant and landlord under an old lease (pre-2023), what steps should they take?

• step 1: Attempt to resolve the dispute informally by discussing the issue with the landlord;

• step 2: Apply for mediation through the NSW Small Business Commission (mandatory before legal proceedings); and

• step 3: If mediation fails, determine whether the dispute must go through NCAT (for new leases) or a civil court (for old leases).

Even for pre-2023 leases, retail tenants cannot go straight to court without first attempting mediation. In all circumstances, it is best to seek the advice of one of our specialist lawyers with experience in retail leasing matters.

General Guidance

7. What advice would you give to tenants or landlords trying to navigate these changes?

• for tenants: review your lease to understand (1) if it qualifies for the protections under the Act; and (2) what protections will consequently follow, particularly regarding outgoings, dispute resolution, disclosure and rent reviews. This is especially so for tenants in the fitness/health industry;

• for landlords: ensure that all leases comply with the Act (where they are deemed to be retail leases), as failure to do so could lead to unenforceable lease terms; and

• both parties should seek legal advice if they are unsure about how the Act impacts their leasing arrangements.

8. Would you recommend that all gym and small bar tenants review their current lease to see if it now falls under the Act?

Absolutely. Even if a lease was signed before 2023, tenants should review their leasing agreement to:

• determine if the mediation provisions now apply;

• assess whether any lease terms contradict the Act (and are therefore a point for further discussion or negotiation); and

• understand whether they are entitled to additional protections under the Act.

Given the significant impact of these changes, it is essential for tenants to ensure they are not unknowingly at a disadvantage under their retail lease.

Key takeaways

The inclusion of gyms and small bars under the Retail Leases Regulation 2022 (NSW) marks a promising shift in the leasing landscape. With new protections for tenants and added compliance requirements for landlords, it is crucial that all parties review their agreements and understand their legal standing.

Tenants are now entitled to greater transparency, financial certainty, and access to mediation, while landlords must ensure compliance with disclosure and mediation requirements to avoid unenforceable lease terms.

All gym and small bar tenants should review their leases to determine whether these new provisions apply to them. Seeking professional legal advice can help both landlords and tenants navigate these changes effectively.

For more information on retail leasing regulations and these changes, visit the NSW Small Business Commission website or consult a property law expert today. At Farahs Legal, we would be glad to assist you and welcome any and all enquiries.