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UPDATE – NSW RETAIL LEASES REFORM?
On 14 October 2025, the Minister for Small Business introduced a further iteration of the Retail Leases Act 1994, this one proposed by the old NSW Small Business Commissioner. Her second reading speech says the reforms “…are practical, balanced and responsive to the needs of the retail leasing sector. They will foster greater confidence in the retail leasing system from both landlord and tenants by improving clarity, streamlining processes and strengthening key safeguards.”
The NSW Retail Leases Amendment (Review) Bill 2025 was before the Legislative Council for review, then it is off for proclamation (apparently). The Bill brings both modest and significant changes to NSW retail leasing law. Despite the Minister’s soothing words, this tranche of “reforms” is likely to add more complexity and increase risk to some retail lessees. The usual pre introduction exposure draft to industry was limited and sadly ignores more fundamental issues facing lessees in a post COVID world.
Objects of this Bill
This Bill sees a new section 2A setting out the Act’s Objects, which is better late than never as our 1994 kick off was meant to be beneficial to lessees and stop the ‘store wars’. There are 6 objects, but sub para (e) is “to impose requirements that are appropriate to enable persons to enter retail shop leases regardless of the size of the person’s business”, yet section 5 already excludes premises larger than 1,000sqm. Good luck with that one.
Exclusions from the Act
Section 5(d) is replaced with a new (d), ousting certain premises the Act covers by: (d) premises used only for purposes prescribed by the regulations as excluded uses, unless the premises are premises the use of which is ancillary to the operation of the retail shop that is the subject of a retail shop lease, and (ii) the retail shop lease applies to the premises”. As we are yet to see new regulations, this clause may be an Exocet missile for anything planned by Councils or owners to add to street dining to struggling CBD hospitality to increase patronage as (a) the use is ancillary to the operation of the shop that is subject to the retail shop lease; and (b) if the street dining area is included in the lease, then “the retail shop lease applies to the premises” – context matters, “the premises” maybe the street dining licence and the Act will apply to the street dining area. So…the Act might apply, if the right to street dining is included in the lease itself, and will not apply if the retail shop lease does not include the street dining and is provided to the tenant under a separate licence. Just imagine what that will do to confuse a buyer who expects street dining to run with the lease. But it doesn’t end there, s 79 is amended to state “This Act applies to a retail shop lease only to the extent the lease applies to: (a) a retail shop; and (b) premises the use of which is ancillary to the operation of the retail shop”. Mangled messaging of the finest and most excellent fodder for NCAT members to work out.
Lease negotiation – where’s my copy of the draft lease?
s9 imposes penalties on lessors who don’t bother to have a copy of a proposed lease available for inspection, but since 1994, we haven’t yet seen penalties apply to discourage these types of mischief.
Disclosure statement
s11 will allow contracting out of the 7 day disclosure statement cooling off period allowing a reduction or waiver by agreement in writing, subject to each party being represented by an Australian legal practitioner. If it’s a lessor’s rush to get a signature without proper advice it’s an obvious trap and now tenant reps might need an extra cautionary step. But the drafting is a bit perverse as the lessee’s right to waive the 7 day cooling off is only enlivened if both parties obtained legal advice about the waiver, requiring lessors to get legal advice about waiving a right it does not have.
Key money
s14 deals with key money but can attract fees with an assignment. However, an assignee might obtain a brand new lease instead of assignment, notable when lessees are in holdover and now lessors can expect a reasonable fee for that the new lease.
Chemists
s20 changes so turnover of a pharmacy is excluded from the Act’s definition of “turnover”. Why? There’s a clash with other legislation and complaints high value medicines attract little net profit.
Relocating premises
s34A deals with relocation adding extra aspects to think about when working out rent for a relocation.
End of term notices
s44 is all about end of the term with a wash and brush up but stops short of the inalienable fact a lessee is in situ for a fixed term with no right of refusal and must plan accordingly – especially start-up losses, close down costs and no expectation or ability to sell on if the lessor isn’t willing. If lessees fully understood that, then they might think differently.
Other tweaks
The Bill didn’t tighten up service of notices, so often critical in retail leases and agreement for lease (handovers, rent commencement, options, current market rent, end of term etc) and s 81A(c) provides a notice served under this Act, “in the case of a mortgagor in possession, if left at… any occupied house or building comprised in the mortgage” and it is hard to know why that’s still there (s170 of the Conveyancing Act is not always retail lease dependent) and that service is effective using a DX but there’s no mention about limitations or otherwise by email service. The inclusion of 81A was originally designed to take the gamble out of notices, but here we are in 2026 still in the lottery and what’s a DX to Gen Z?
Overall
This Bill is the first of a tranche of changes despite some dreadful oversights. It remains to be seen that policy to protect the fragility of retail and hospitality will spring forth from the next rounds of amendments.
Go here for the update: https://www.parliament.nsw.gov.au/bill/files/18809/First%20Print.pdf
Go here for proposed amendments: https://www.parliament.nsw.gov.au/bill/files/18809/IND%20-%20c2026-031.pdf
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UPDATE – GULF WAR AND POST COVID (UN) AFFORDABILITY – IMPLICATIONS FOR RETAIL LEASE RELATIONSHIPS AND DISPUTES
The post COVID medical emergency is clearly in the rear-view mirror, but the financial fall-out for many small and medium-sized enterprises (SMEs) still blinks code red. The Gulf War fuel shortages could see a significant shift in economic condition causing more pain. Over 99% Australian businesses are SMEs, about 2.66 million – only about 68,000 are medium sized. Many SMEs in retail and hospitality struggle to reach pre-COVID sales and without economies of scale, are slowly but surely being priced out of business. Affordability is the watchword for SMEs and for those in retail and hospitality, ‘affordability’ now hits three ways. I’m not just talking SME lessees, but also SME lessors.
SMEs’ customers – wants vs needs
The cost-of-living crises is well known. Housing rents and mortgage payments has overwhelmed some families, eating into over 40% of income. Work from home, the gig economy and a changing demographic has altered spending patterns leaving many families nervous enough to keep their wallets closed. COVID has turbocharged these changes. Australia’s cost-of-living crises affects most customer facing industries and even once recession proof low cost, fast food. This isn’t a uniquely Australian phenomena as the largest global chains embark on quick consolidation to survive. We see increased use of micro credit services like Afterpay and consumer credit card debt is stubborn at $43 billion. Many households have fallen behind from recent inflation spikes and large job losses in some sectors such as construction has reduced many household incomes. Social forces such as AI, digitisation generally and changing habits impact both basic needs and discretionary spending. Jobs growth is uneven, although an aging population is both an opportunity and a curse. Reasons for 2024–25 personal insolvencies self-identify 37.3% from excessive borrowing, 22.0% from forced unemployment and SME business failure at 17.9%.
SME business expenses – what they can pay before its time to shut the shop for good
Reduced customer volume or smaller average sales or both mean many SMEs are on the edge of survival whilst struggling to contain increased expenses, including rents. Of course, there are sectorial and geographical differences, but CBD office vacancies are at record highs driven by decentralisation, work from home and new supply outpacing demand – Sydney’s CBD office vacancy is 13.7%, Melbourne 17.9% and Perth 17.0%. CBD sales drops are somewhat offset by local increases as the retail spend is spread over a greater geographic area and lately, bolstered by inbound tourism and immigration with the rebound from mid 2023 started in earnest – but many operators are still not yet rightsized or on sound financial footing.
Hospitality has been hit particularly hard with increased wages and food costs. The ATO is owed about $35 billion by SMEs and is aggressively chasing SMEs. Calls to SME debt helplines over tax debts sit at record highs. Construction, hospitality (food, accommodation) and retail remain the highest insolvent ‘sectors’ and still climb; FY20=7,362; FY21=4,235; FY22=4,912; FY23=7,942; FY24=11,053 and FY25, an eye popping 14,722. With 3,536 new business-related personal insolvencies in 2024–25, this is the highest proportion since 2013–14 and business-related personal insolvencies since 2022–23 trend ever skywards. Those SMEs hanging on by their fingernails face wage rises over 3.4% and energy cost inputs of more than 10%. Costs of goods has risen sharply in some sectors – reports of an average cup of coffee – up 37.5% from pre-COVID levels of $4.00 to about $5.50 driven by supply chain issues, adverse weather events and rising input costs – milk, energy and wages must be passed on to customers to stay afloat. Escalating rent, barista and café worker wages up 6.6-8%, and creeping operating costs coupled with falling income as customers cut back creates an unsustainable financial future for many SMEs. The aftermath of post COVID inflationary pressures and legislative wage increased means the cost of SMEs doing business should be national daily headlines but isn’t.
Tenants and landlords unite or fight
In retail, after labour input, the single biggest driver of profit or loss is occupancy cost ratio and getting that wrong is disastrous. Complaints about retail leases to the NSW Small Business Commissioner are by far the most common. From the COVID crises to the present day, things have changed little. As SMEs’ incomes erode and expenses rise, landlord and tenant relationships often become strained. When COVID induced Governments shut down the economy, measures in place under COVID emergency lease regulations dampened many landlord-tenant tensions, but even so, they did not stop many shops going dark and ‘for lease’ signs popping up like dessert flowers. COVID stress tested many landlord-tenant relationships as thousands of tenants rent abatements were vital to survive. UberEats might be great turnover for some, but profitability is not so great and can be contentious under turnover cases. With fixed contracts in place, successfully navigating retail lease disputes can be both a legal and commercial challenge and it’s not always greedy landlords to blame as often portrayed in the media. Landlords too face their own share of rising costs. They, like many SMEs aim to pass on increases to customers, try to pass on to their tenants with the entire chain squeezing everyone. Increases in outgoings such as land tax, security and energy to pass throughs coupled with maintenance, essential capital improvements, interest and borrowing costs and covenants can put everyone in a delicate position with the retail lease front and centre. In a post COVID world, understanding local economic forces, micro and macro impacts on customers is a must. Being clear eyed with the premises, usages and layouts and realistic location strengths and weaknesses, sustainable lease terms and market opportunity for long term landlord-tenant relationships is key to avoiding disputes, expensive legal battles and even a bankruptcy statistic.
Disputes, mediations, NCAT and other Tribunals – is there a better way?
Now, more than ever, retail tenants and property owners need to work together and find common sense blend of legal, commercial and retail driven solutions. Mediation is the first step if communication breaks down, but rather than think cap rates, LVRs and legal loop holes driving leasing, now is the time for sustainable retail offers that dovetail to the premises, target local community and put good operators first. Past attitudes where the power imbalance is rapidly shifting means in today’s world, commercial leverage pushed too far will come back to bite.
Sources: ABS, ASIC, ASBO, ATO, OSBC NSW
Stephen has been a retailer, retail property manager, consultant and developer. He provides retail focussed skills and experience to legal occupancy few others can. With decades of retailing, property, advisory, legal and accounting experience, we implement retail lease management, financial, leasing and strategic thinking for retail clients – a single shop or an entire retail network. Stephen was one of the original architects of the Retail Leases Act (NSW) 1994 and later amendments via his position on the Ministerial Retail Lease Advisory Committee representing COSBOA and other retail organisations in various Government submissions. During COVID, he assisted Treasury with the various iterations of the COVID Regulations governing leases. He has attended hundreds of mediations, been expert witness and represented numerous lessees before NCAT in NSW, a few in VCAT in Victoria and in the NSW Supreme Court and Land and Environment Court. Selected cases amongst many are listed below: –
Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Ltd [2006] NSWADT 323
Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Ltd ( No 2) [2007] NSWADT 58
Lolly Pops (Harbourside) Pty Ltd v. Werncog Pty Ltd [1998] 9 BPR [97719] Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Ltd (RLD) [2007] NSWADTAP 47
The Law Society of New South Wales v Stephen Gary Spring and Another [2007] NSWSC 1273
AWPF Management Pty Ltd v Red Roll Pty Ltd & Ors (RLD) [2009] NSWADTAP 3
Ull Pty Ltd v Adwell Holdings Pty Ltd and Adwell Holdings Pty Ltd v Ull Pty Ltd [2009] NSWADT 246
Ull Pty Ltd v Adwell Holdings Pty Ltd [2010] NSWADTAP 15
Torchia v Swanton [2010] NSWADT 142
Adwell Holdings Pty Ltd v Ull Pty Ltd [2010] NSWADT 166
Torchia v Swanton (No. 2) [2011] NSWADT 185
Torchia v Swanton (RLD) [2012] NSWADTAP 5
Spring v North Sydney Council [2018] NSWSC 463
Wellness Bodycare Pty Ltd v Newtons Pharmacy Services Pty Ltd [2023] NSWCATAP 312
MJHQ Pty Limited v Wynne Ave Pty Limited [2018] NSWCATCD 61
Wynne Avenue Property Ltd v MJHQ Pty Ltd (No2) [2019] NSWCATAP 68
Shams v 357 Thornleigh Place Pty Ltd [2022] NSWCATCD 177
Tong Joo Pty Ltd v Reilly [2023] NSWCATCD 41
357 Thornleigh Place Pty Limited v Shams [2023] NSWCATAP 127
Sherikey Pty Limited v Amos 1386 Pty Ltd & Ors [2023] NSWCATAP 218
357 Thornleigh Place Pty Limited v Shams (No 2) [2023] NSWCATAP 229
Wellness Bodycare Pty Ltd v Newtons Pharmacy Services Pty Ltd [2023] NSWCATAP 312
Multistar Pty Ltd v Popkorn Group Pty Ltd; Popkorn Group Pty Ltd v Multistar Pty Ltd [2025] NSWCATCD 1
FACING POST COVID RECOVERY
Think about the future – If you are trying to negotiate a new rent arrangement or in dispute, it’s critical the final agreement to vary the lease is documented. There are significant risks if lease variations are not documented properly. Relying on oral agreements, a few email or simple letters to cover the deal seem easy enough and save you time and money, but may not capture the complete agreement clearly and with sufficient detail to avoid a dispute later.
Documents that record the deal – A lease is a formal legal document for land which may require variation by way of a deed or be registered to be legally binding. The extent and magnitude of the rent, outgoings and licence variation (say, if some of the rent is deferred) must be carefully worded and refer to the lease. It is not certain an email or letter will be sufficient, or one day you may need a Tribunal or Court to provide a declaration if things go wrong. You want to avoid that!
Avoiding future problems now – Variations not prepared correctly may allow a party to avoid their obligations or may not be bind the parties if the premises is sold or repossessed by the bank. Omissions may mean the variation agreement might not bind all parties, or may just operate for the current lessee and not apply to a future any buyer of the business. The rent variation might be conditional upon customer numbers, sales turnover and government re-opening guidelines so on and should clearly worded. Extending a term of a lease which is registered will need a variation for registration on title or maybe a consent from a bank or other lender. Major lease variations may even amount to a surrender at law and it may be better to think about a whole new lease. There’s a lot to consider.
Bottom line. A properly considered lease variation document will protect the interests of both parties and hopefully avoid a dispute further down the road to recovery.
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