The distinguishing feature of the Australian retail real estate market is its highly regulated retail lease controls, and the impact of specific retail lease legislation separately enacted across each of the states and territories.

This legislation is presently contained in the:

• Retail Leases Act 1994, New South Wales
• Retail Leases Act 2003, Victoria
• Retail Leases Act 2003, Queensland
• Retail Shops Act 1994, Western Australia
• Commercial Tenancy (Retail Shops) Agreements Act 1985, South Australia
• Retail Commercial Leases Act 1995, Tasmania
• Fair Trading (Code of Practice for Retail Tenancies) Regulation 1998, Australian Capital Territory
• Lease (Commercial and Retail) Act 2001 and Business Tenancies (Fair Dealing) Act 2003, Northern Territory

This retail lease legislation has common themes and principles. It does, however, differ slightly across each of the eight jurisdictions. There have been calls to standardize the legislation, as many landlords are national, and retailers increasingly operate on a national chain basis. However, this has not occurred to date.

In each case, the retail legislation comprehensively enshrines certain statutory protections into retail leases, principally for the benefit of retail tenants. The origin of the legislation was the protection of retail tenants that were considered to have little or no effective bargaining power against the several large institutional landlords that dominate the key shopping malls and precincts in the highly securitized retail real estate market in Australia.

The legislation sets out very specific controls on lease terms and the rights and obligations of tenants and landlords in respect of retail leases; and provides a regime of detailed disclosures requirements, principally from the landlord to a tenant, at the commencement and during the course of a retail lease.

The main provisions of the legislation are set out below.

1.    Retail Premises to which the Legislation Applies

The legislation provides definitions of retail premises, retail shops and retail shopping centers that come under the protection of the legislation. There are additional provisions that take effect to cover tenancies within retail shopping centers. There are many detailed provisions that prescribe the form that the key terms of a retail lease must take, but the legislation falls short of specifying a prescribed form of retail lease document.

2.    Copy of Proposed Lease

The legislation requires that a copy of a proposed retail lease be provided for inspection by prospective tenants. Such a copy may have to be provided in a specific period and form. In most jurisdictions, it must be provided as early as practicable in the negotiations. In certain jurisdictions, the legislation provides for consequences of failing to provide a copy of a proposed lease, including a fine.

3.    Disclosure Statements

To comply with disclosure requirements, a disclosure statement with a prescribed form, or one containing prescribed and very detailed information about the tenancy and the premises, must be given to the prospective tenant within a certain period of time before a lease commences.

These disclosures have to be repeated in certain circumstances (e.g., assignment or renewal of the lease).

4.    Key Money

The payment of a premium or a nonrefundable amount to a landlord in connection with the grant of a lease, renewal or extension of an existing lease is prohibited.

5.    Minimum Lease Term

The legislation provides the term of a retail lease (together with any option term) be not less than five years, except in Queensland, where no minimum lease term is provided. Note that the minimum lease term can be exempted in circumstances where a formal, witnessed waiver is given.

6.    Rent Reviews

The legislation imposes the time, basis and formula according to which rent reviews are to be conducted. These rent controls are quite specific, and not only prescribe the forms of rent review but prohibit types of rent reviews that result only in rental increases, and prescribe the valuation process for the determination of market reviews.

7.    Outgoings

The legislation provides control of and limits on the pass-through and recoverable costs and restrictions in relation to the calculation of outgoings for retail leases. The legislation also provides list of outgoings that tenants cannot be asked to contribute to.

8.     Extension of Lease on Expiry

The legislation also provides a period in which the landlord must notify the tenant whether or not it intends to offer a renewal of a lease at expiry (and, if so, on what terms). If the landlord fails to comply with the notification requirements, the lease may be extended for a specific period.

9.    Conduct and Dispute Resolution

Generally, the legislation prescribes that retail landlords must not act unconscionably in their dealings. In the case of a dispute, parties may refer the matter to mediation. More formal procedures for dispute resolution thereafter are subject to requirements by jurisdiction, but generally involve a retail-based dispute tribunal.

10.    Additional Documents

The legislation provides that landlords are required to provide to prospective tenants documents relating to the lease (e.g., information brochure, retail tenancy guide and handbook) during the lease negotiations.

11.    Fit-out

Generally, a tenant is not required to pay, or contribute toward, the cost of any fit-out, unless the requirement to make a payment or contribution is set out in the disclosure statement.

12.    Security Deposits

The legislation provides characteristics of, and mechanisms and requirements for, making security deposits for retail leases.

13.     Relocation and Demolition

The legislation provides detailed procedures in a lease to provide for relocation or demolition of a tenant’s premises. The legislation also provides certain requirements for the landlord to comply with (e.g., giving prior written notice, offering comparable alternative premises, and giving sufficient details of the proposed refurbishment, redevelopment or extension). Note that the tenant is generally entitled to terminate the lease.

14.    Application of the Retail Legislation to the Luxury and Fashion Industry

The carve-out of the application of the legislation to the luxury and fashion industry differs across the various legislations. In some of the major states, the legislation does not apply to corporation tenants that are subsidiaries of listed entities, whether on the Australian Stock Exchange or on foreign stock exchanges. In other jurisdictions, retail premises are exempt if the rent exceeds AUD 1 million per annum. Other jurisdictions make exemptions for premises in excess of 1,000 square meters in area. Needless to say, the legislation has mixed application to the luxury and fashion industry across the key markets in Australia.

Retail lease contracts are governed by the Belgian Act on commercial leases of 30 April 1951 (the Act), most provisions of which are mandatory.

The main features of the Act can be summarized as follows:

1.    Scope of the Act

A commercial lease is defined as a lease relating to a retail trade or a craftsperson’s business in direct contact with the public, and covers premises used by the tenant for the solicitation of his or her customers (basically, retail outlets and selling or service points).

2.    Duration

a.    Nine-year Term

In order to reflect the investment made by the tenant in developing an outlet, and in view of the role the leased premises play in attracting the tenant’s clientele, the law has fixed the duration of any such lease at a minimum of nine years.

At the expiration of the term of the lease, if the tenant is allowed to stay in the premises, while the lease has not been renewed or extended, there will be a new lease agreement of an indeterminate period. The landlord may terminate the lease at any time, subject to a notice period of at least 18 months.

b.    Three-year Early Termination Right

The tenant has the right to terminate the lease agreement at the end of each three-year term, subject to a notice to be served to the owner by registered mail, or by bailiff, at least six months prior to the end of such three-year term. This right is available even if it is not provided in the lease agreement. Pursuant to case law, such rule is mandatory, so it is not possible to change it, nor render the exercise by the tenant of its early termination right more burdensome (e.g., by imposing financial penalties, such as indemnities or keeping the bank guarantee amount).

On the other hand, if specifically provided for in the lease agreement, the owner may also terminate the agreement at the end of each three-year term, but only for personal occupation by the owner or closely related persons or entities.

c.    Right of the Tenant to Apply for Three (Nine-year) Consecutive

Renewals

The tenant has the right to apply for and obtain renewal for three consecutive nine-year terms. The tenant will therefore have a basic right to maintain a commercial lease for a period of 36 years (if the first term of the lease is nine years) through timely notification of the renewal request. The tenant may file the request for the renewal of the lease, by registered letter or by bailiff, from the 18th month and until the 15th month preceding the end of the current lease period. Such a request for renewal must contain certain information fixed by the Act, failing which the request shall be considered null and void.

Notwithstanding the above, the owner may preclude the renewal of the commercial lease under certain conditions at the end of the ninth, 18th or 27th year. The most typical conditions would be where: (i) the owner has received a better offer from a third party willing to take on a lease of the premises, and the tenant has not validly sent a counter-offer matching the conditions offered by that third party; or (ii) the owner has decided to rebuild the building or the leased premises. The owner can also counter-offer conditions other than those proposed by the tenant in his or her renewal request.

If the parties do not agree, the matter in dispute will be litigated before a justice of the peace. For instance, with regard to discussions of rent, the justice of the peace will take into account prices that are standard in the area or the region for comparable real estate and the special nature of the commerce. He or she shall not take into account the positive or negative return on investment of the business, which is exclusively due to the tenant. The offer of the third party shall only be an element that can be withheld, provided the third party agrees to pay to the tenant the exit indemnity.

Where the owner does not renew the commercial lease, he or she must then pay the tenant a sum equal to one year’s rent or up to three years’ rent, depending on his or her reasons for refusing the renewal. The indemnity for the refusal of renewal is equal to:

• one year when the landlord wishes to use the property for a use other than commerce or rebuilding
• two years of rent when the commerce performed in the premises by the landlord shall be the same as the one previously performed by the tenant
• three years (increased with possible damage caused) if the landlord does not perform the intention communicated to the tenant when the renewal was refused within six months and for a period of at least two years from the end of the lease
• one year of the rent stated in the new lease if a reasonable offer from the tenant has been refused due to a higher offer of a third party, and the third party performs another trade in the premises
• two years of the new rent when the new tenant performs the same trade
• three years of rent (increased with possible damages) if the landlord or the new tenant starts a similar trade before the end of two years without having informed the tenant thereof. Both the landlord and the new tenant shall be jointly liable for this indemnity

3.    Rent Adaptation – Rent and Market Rental Review

a.    Yearly Rent Adaptation

Pursuant to article 1728bis of the Belgian Civil Code, rent may be reviewed once a year, on the anniversary of the starting date of the lease, pursuant to the health index, using the following formula:

Reviewed rent = initial rent X new index (index of the month preceding the anniversary of the starting date of the lease)/base index (index of the month preceding the date of signature of the lease).

b.    Rent and Market Rental Review

Before the end of each three-year period, each party may file a petition to revise the rentals to be paid by the tenant under the agreement if, due to new circumstances, the normal rental value of the property has increased or decreased by more than 15% of the rentals, as established in the lease or in the last revision.

Such a petition must be filed with the competent justice of the peace in the course of the three-month period preceding the end of each three-year period.

4.    Assignment

An assignment of the lease agreement (or a subletting of the premises) by the tenant is, in principle, allowed if the business itself is transferred together with the lease agreement. However, the owner may object to such transfer for "good reasons".

It must be noted that, even in the case of such an assignment (or subletting), the initial tenant remains jointly and severally liable with the assignee/subtenant for all the obligations toward the owner resulting from the lease agreement.

5.    Works to the Rented Premises

According to the Act, a statutory right exists for the benefit of the tenant for performing any modification that could be useful for its business in the rented premises, provided that:

• the cost of these works does not exceed three years of rent
• these works do not affect the security, stability or aesthetic aspects of the building
• a prior notice containing the plans and an estimate is sent to the owner by registered letter, in order to give him or her a chance to oppose it. The owner is deemed to agree with these works if no reaction is given within a 30-day period after the reception of the tenant’s notice

At the expiry of the lease agreement, the works and alterations to the rented premises may remain in place and will become the property of the landlord (in which case the landlord will have to reimburse the value of the materials and the labor, or pay an amount equal to the added value to the building), except if agreed otherwise in the lease contract.

1.    Letters of Intent

A letter of intent (head of terms) is commonly used in Brazil. However, it is often negotiated by the client directly or through real estate brokers, with no, or limited, involvement by lawyers. A letter of intent usually has a limited time period in which it is applied, and may be conditional or not legally binding (though nevertheless respected by the parties).

A letter of intent includes the most basic commercial terms, such as premises, rent, rent-free periods, security, indexation, commencement date, term, break options and prolongation options.

The usual exclusion of legal advice at this early stage makes negotiations regarding particular terms of the lease contract more complicated and time consuming, as numerous significant legal and commercial issues, such as early access, termination reasons, rent discounts, penalties, damages, services and service charges payments, may be omitted from the letter of intent.

2.    Rent and other Lease Payments

Rent for retail premises is usually triple the net rent.

A combination of basic and turnover rent is used for leases in shopping centers. Basic rent is adjusted for inflation on a yearly basis through the use of official indexes (with the General Price Index (GPI) used most frequently).

All expenses and management costs (including insurance, marketing and administrative costs) are re-invoiced to tenants (the extent may depend also on the position of the tenant), the amounts being calculated proportionally to the size of the lease area.

The tenant is also usually responsible for the day-to-day maintenance of the premises.

Caps are largely opposed by landlords, and so caps on service charges are unusual. However, caps on minor maintenance are acceptable in certain cases.

3.    Incentives and Key Money

An initial rent-free period and eventual fit-out contribution (even during the entire lease term) are standard tenant’s incentives.

Key money is not unusual in the retail industry in Brazil, particularly for leases in shopping centers. In most cases, payment is construed as a reimbursement of the landlord’s initial investments in the leased site (such as design projects’ costs) and subject to a separate agreement. Key money is not considered additional rent.

At the tenant level, key money is considered an expense, which is spread over the duration of the lease.

Landlords very often obtain, through negotiation, payment of lump-sum key money by the new tenant to be able to lease the retail space. The key money represents the value attributable to the location of the site. Often, the landlord will require payment by the new candidate tenant of lump-sum key money in addition to the rent, fees and services charges payable under the lease agreement.

4.    Flexibility in Leases

Assignment and subletting is permitted only with the prior written consent of the landlord. However, assignment and subletting to a group company is often permitted, based on the parties’ agreement.

Brand exit is usually not regulated in the lease agreements, and there is no applicable statutory provision. A lease for a definite period may not be terminated by the landlord for convenience; however, the tenant may terminate the lease upon prior notice and payment of the penalty agreed under the lease (or fixed by a court if the lease is silent in that respect).

The permitted scope of use is generally a highlighted and restricted issue of the lease agreement and, usually, the tenant may only change the scope of the use with the prior consent of the landlord.

5.    Key Operating Standards

It is usual to provide obligations to trade in leases for retail premises in commercial centers. This includes an obligation on the tenant to comply with opening hours, and join a tenants’ association, to be part of promotional campaigns.

Restrictions on competitors and exclusivity provisions need to be negotiated on a case-by-case basis and agreed in the lease.

Staffing and stocking are not usually limited by the landlord. It is usual, however, to specify in leases for retail premises in commercial centers that the sales surface area shall not exceed a maximum surface area.

6.    Tenancy Fit-out Issues

The fit-out is typically done by the tenant.

At handover, the premises are usually delivered in concrete shape without any fit-outs.

Certain fit-outs may require prior public approvals: in particular, construction permits (prior to the commencement of works).

Typically, the design and fit-out are subject to the landlord’s approval, which must not be unreasonably withheld. Alternatively, the fit-out plans are attached to the lease and approved by the landlord. It is also quite common that nonstructural alterations (like the interior fit-out) be permitted to the extent that they do not affect the structural integrity of the building.

7.    Damage and Destruction

If damage or destruction render the continued use of the leased premises almost impossible, the lease agreement would be automatically terminated, unless the lease agreement provides otherwise.

If the damage or destruction does not significantly affect the use of the premises, the lease would continue in accordance with its provisions, unless otherwise provided. Brazilian lease law provides that in the event the landlord needs to undertake repairs to the premises, the tenant must allow such repairs without any indemnity or rent rebate, except when the repair works continue for at least 10 days, in which case the tenant would be entitled to a rent rebate. The tenant may terminate the lease if repair works continue for 30 days or more. Very often, a lease will contain specific provisions deviating from these rules, either to improve the position of the landlord or, alternatively, the legal position of the tenant.

8.    Limited Liability

The landlord is liable for structural defects of the leased premises and shall repair any such defect. However, the landlord is normally not liable for the interruption of services provided by third-party service providers (e.g., public utility services).

9.    Specific Issues

Leases in Brazil are governed by the law number 8.235 dated 18 October 1991, which regulates residential, commercial and industrial leases, and subsidiarily by the Brazilian Civil Code.

Under Brazilian lease law, when a lease exceeds five years, the tenant has the right to an automatic renewal of the lease (if some conditions are met: i.e., the tenant will maintain the purposed use of the leased premise) and cannot be removed from the leased property, except in the case of specific defaults. The rent for the lease extension is negotiable and if the parties cannot agree on the amount, it will be determined in court.

If the leased premises are to be sold, the tenant has the legal right of first refusal (unless the right was waived under the agreement). If the tenant does not exercise such a right, the new owner of the real estate must honor the lease agreement if the following requirements are met: (i) the agreement establishes that it shall continue in force in the event of sale to third parties; (ii) the agreement was entered for a fixed term; and (iii) it is registered with the relevant Real Estate Registry.

The law also provides for different types of collateral – a landlord may request as security for a tenant’s compliance with the agreement (unless the rent is paid in advance): (i) a deposit equivalent to the maximum of three rents to be deposited into a savings account during the term of the lease; (ii) a personal guarantee extended by an individual or an entity (this may be replaced by a bank guarantee); or (iii) an insurance policy covering compliance with the tenant’s obligations. The law does not permit more than one type of collateral for the same lease agreement.

Further, there are typically four documents associated with the landlord-tenant relationship as regards the ruling of the use of private and common areas in a shopping center: (i) the Declaratory Deed of General Norms Regulating the Functioning, Utilization and Lease of the Shopping Center; (ii) the Internal Rules of a Shopping Center; (iii) the Shopkeepers’ Association rules; and (iv) the specific lease between the landlord and the individual tenant.

The Declaratory Deed governs the development, construction and basic operating rules of the center, and is registered with the incumbent notary registry. A registered Declaratory Deed has priority over all subsequent documents such as individual leases, whether such leases are registered or not. If there is a conflict between the Declaratory Deed and the individual lease, the clause in the Declaratory Deed takes preference, unless the lease specifically references the conflicting clause and specifies the difference. It is not sufficient to state a general clause in the lease that in the case of conflict between the two documents, the lease clause applies. For the clause to apply, each conflicting clause must be specifically enumerated and referenced in the lease.

1.    What Laws Regulate Retail Leasing?

Retail lease agreements are regulated, like all other real estate leases, by statute and English common law principles. The key statute regulating all leases is the Landlord and Tenant Act 1954 (the 1954 Act).

There are no nationality restrictions on holding a lease, and there is no distinction between UK and foreign nationals in the process of securing retail space.

2.    Use of Letters of Intent

Letters of Intent (usually known as heads of terms) are commonly used in England and Wales. They are usually negotiated by real estate agents, and lawyer involvement is low – though advisable, if possible.

They are usually nonbinding, other than their confidentiality and exclusivity provisions, if specifically stated.

Heads of terms include the basic economic and commercial terms, such as premises, rent, rent-free periods, security, indexation, commencement date, term and break options. They vary in the level of detail included. The more detail that can be included (with lawyer involvement) the better, as while they are, in the main, nonbinding, it can become more difficult to negotiate key issues at a later stage if they have not been agreed in the heads of terms. Any brand-specific requirements should be flagged at this stage.

3.    Agreements for Lease and Leases

It is very common for parties to enter into an agreement for lease prior to the main lease agreement. An agreement for lease is a binding document that requires the tenant to take the lease after the occurrence of specific events: usually, the landlord gaining vacant possession and/or carrying out some landlord’s works. If key monies are payable, a 10% deposit is usually taken. This is returnable if the conditions are not fulfilled. A longstop date, by which time the conditions must be fulfilled, is usually agreed.

The agreement for lease sometimes provides for early access for the tenant to start its fit-out works.

Once the conditions are fulfilled (i.e., the landlord’s works have been completed), the main lease agreement will be signed and completed. Completion occurs, and the lease becomes legally binding, on the day the lease is dated, not the date of signing. The tenant’s lawyers hold the signed documents in escrow until dating.

It is usual to sign the documents in counterpart and for each side’s lawyers to hold their own client’s signed copy. The originals are then swapped upon completion.

4.    What are the Specific Key Retail Lease Issues?

a.    Rent and other Lease Payments

Rent is usually triple the net rent, which is known as a fully repairing and insuring (FRI) lease on an institutional lease.

In shopping centers, it is usual to see turnover rents payable over and above basic rent. Basic rent is usually then adjusted in line with the Retail Prices Index on a yearly basis.

Five-yearly upward-only rent reviews are the most common.

All expenses and management costs (including insurance, marketing and administrative costs) are usually covered by the tenant under a service charge.

The tenant is responsible for business rates. Properties are assessed on the basis of their annual rental value on a fixed valuation date, using assumptions fixed by statute.

b.    Term

There is no maximum or minimum term by law. Standard retail leases tend to be between five and 10 years.

The 1954 Act grants to a tenant the right to call for a new lease at the end of the original term of years, unless the landlord objects to such renewal and demonstrates to the court’s satisfaction that it should not be granted.

There are a limited number of grounds on which a landlord may object to a renewal, and it must prove such ground(s) to the court’s satisfaction. One such ground is that the landlord wishes to redevelop the property at the end of the term. Another is that the landlord wishes to occupy the premises for its own business at the end of the term.

However, increasingly, parties agree at the beginning of the lease that the tenant will not enjoy the security of tenure protection offered by the 1954 Act. The effect of this is that the lease automatically expires at the end of the original term, with no right for the tenant to renew. The parties must follow a simple statutory procedure in order to exclude the lease from the provisions of the 1954 Act.

A break clause can be negotiated for either party, but is less common in retail leases.

c.    Incentives and Key Money

Initial rent-free periods and fit-out contributions are standard tenant’s incentives.

Key money (also known as a "premium") is often seen in the luxury sector, for flagship store locations, such as Bond Street and Oxford Street in London. It is rare in shopping centers.

d.    Flexibility in Leases

Assignment and (less frequently) subletting are usually permitted only with the prior written consent of the landlord.

There are rarely any changes to control provisions, but provisions stating that only the tenant’s brand may operate in the premises under the agreed brand names are frequently seen.

e.    Trading

Leases for retail premises usually include "keep open covenants" (i.e., an obligation to trade). This is very usual in shopping centers where turnover provisions apply, but is also the case in prime locations.

Restrictions on competitors and exclusivity provisions need to be negotiated on a case-by-case basis and agreed in the lease.

Opening hours are often set out in leases, particularly in shopping center ones, but are generally governed by local municipality laws.

f.    Decoration

It is usual to include provisions that internal and (if relevant) external redecoration must be carried out by the tenant every five years.

g.    Yielding Up at the End of Term

The premises usually have to be handed back in a full state of repair, with all the tenant’s fixtures and fittings removed.

h.    Fit-out

The fit-out is typically done by the tenant.

At handover, the premises are usually delivered in shell and core.

Fit-out works often require planning permission from the local council, prior to the commencement of work.

Typically, the design, fit-out and signage are subject to the landlord’s approval, which must not be unreasonably withheld.

I.    Alcohol Products

Luxury brands may wish to serve alcohol (such as champagne) to clients. If the store is selling alcohol, a premises license is needed, as well as an appointed supervisor who has a personal license. An application to the local municipality will need to be made and the cost is dependent on the ratable value of the property.

If the retail store is giving away alcohol, it will not need to apply for a license, provided that a customer is not under an obligation to purchase something in order to get a free drink.

If soft drinks are sold, these are technically classified as food, so the store would need to register as a food business with the municipality. If food is given away, the municipality may need to be alerted, so that food safety officers can do a risk assessment.

5.    What Taxes Affect Retail Leasing?

There are no special taxes for retail leases. The following taxes are, instead, applicable (as under other real estate leases):

Value-added tax (VAT), which is currently at 20%, is applicable to certain rental payments under a retail lease agreement, where the landlord has opted to tax. Most retail leases are therefore subject to VAT, but there are some exceptions.

Stamp duty land tax (SDLT) is charged on land and property transactions in the UK. The tax is charged at different rates, and has different thresholds for different types of property and different values of transaction. There is an SDLT charge of 1% of the net present value of the rent over the term, where this exceeds GBP 125,000, and there is also an SDLT charge on any key money as follows:

Up to GBP 150,000 – annual rent is under GBP 1,000	Zero
Up to GBP 150,000 – annual rent is GBP 1,000 or more	1%
Over GBP 150,000 to GBP 250,000	1%
Over GBP 250,000 to GBP 500,000	3%
Over GBP 500,000	4%

This is payable within 30 days of occupation.

6.    Registration

Leases over seven years need to be registered at the Land Registry, and a small registration fee will need to be paid.

7.    Security

It is usual for a landlord to require some form of security. This can be in the form of a parent guarantee (if the parent company is based overseas, a legal opinion on their standing and legality is almost always required), a rent deposit deed or a bank guarantee.

1.    Duration, Termination and Renewals

In France, retail lease agreements, like all commercial lease agreements, are governed by two different sets of rules stipulated under the French Commercial Code and the French Civil Code and that are, generally speaking, favorable to tenants.

The French Commercial Code governs the duration, renewal and termination of commercial lease agreements, rent review, use of the premises, subletting and assignment, while general terms of commercial lease agreements, such as maintenance and repairs, are governed by specific provisions of the French Civil Code (see below).

The duration of commercial lease agreements cannot be less than nine years, but the landlord and tenant can provide for a longer term. For instance, the term of retail lease agreements for premises in shopping centers is usually 10 years, so that rent can be fixed at market value upon renewal. If the term is more than 12 years, however, it must be registered with the Land Registry, thus triggering specific costs (notary fees, registration duties and Land Registry fees).

The French Commercial Code also allows short-term leases not exceeding three years. These short-term leases, which are outside the scope of regulations on commercial lease agreements, are governed only by the general provisions of French Civil Code applicable to lease agreements. These short-term leases are usually entered into when companies want to test their concept before entering into a commercial lease agreement of nine years, or open so-called "pop-up stores" at specific street locations.

Unless specific conditions are met, the landlord cannot terminate a commercial lease agreement during this nine-year period. On the other hand, the tenant benefits from a triennial right of termination (through the delivery of a notice to quit by process server six months in advance) but may contract out of such a triennial right of termination. This is usually the case when the landlord grants to the tenant a rent-free period or contributes financially to the tenant’s fit-out works.

Upon expiry, the tenant benefits from the right to obtain a renewal of its commercial lease agreement, and the landlord cannot refuse to grant such renewal without paying to the tenant compensation for eviction, the cost of which can be substantial. This so-called security of tenure is an essential aspect of French regulation of commercial lease agreements.

Following a law dated 18 June 2014, this security of tenure is now granted to foreign companies or individuals without limitations (subject, however, to registration at the relevant Commercial and Companies Registry of the business operated in the rented premises).

2.    Rent Structure

The initial rent is fixed by parties before signature upon the execution of the lease. It generally corresponds to the market price for such premises and is usually paid quarterly in advance. For retail lease agreements for premises in shopping centers, the rent is usually structured through, on the one hand, a minimum indexed rent and, on the other hand, a percentage of turnover made in the rented premises. This is more rarely the case for retail premises in street buildings.

Parties to commercial lease agreements are free to stipulate that rent shall be indexed on an annual basis. However, under French law, such indexing will be only valid if it is directly related to the object of the contract or to the activity of one of the parties. Until recently, the index that was usually chosen for commercial lease agreements was the National Cost of Construction Index (L’indice du coût de la construction (ICC)). Other indexes created over the past few years were an alternative to the ICC: the Commercial Rents Index (Indice des Loyers Commerciaux (ILC)) for commercial activities, and the Index of Rents for Services Activities (Indice des loyers des activités tertiaires (ILAT)) for services activities. Following the law dated 18 June 2014 mentioned above, the ICC will no longer be valid for commercial lease agreements entered into or renewed from 1 September 2014; parties will have to use the ILC.

In addition to this yearly rent review, the rent of commercial lease agreements may be reviewed by the landlord or the tenant every three years during the lease term. Upon renewal, and depending on the case, increases in rent may be capped or rent may be fixed at market value. The law dated 18 June 2014 mentioned above will significantly modify the regulations applicable so far to commercial lease agreements by providing for a cap on rent increases during the lease term or upon renewal.

3.    Key Money

Upon the execution of leases, it is not unusual for tenants of retail premises located in performing shopping centers or top-located street buildings to pay landlords key money. Payment of this key money will be deemed compensation to the landlord for the security of tenure granted to the tenant, as mentioned above, or for the cap mechanism in rent reviews benefiting the tenant, as mentioned below.

4.    Allocation of Obligations and Service Charges

With respect to basic obligations of landlords and tenants, landlords are usually required to repair and maintain the structure of the rented premises (these repairs are usually referred to as major repairs in article 606 of the French Civil Code) and insure the rented premises, while tenants are usually required to pay rent and service charges when they are due, keep the rented premises in good maintenance and repair order, and insure their belongings, merchandise and goods within the rented premises.

However, it is not unusual (especially for retail premises in shopping centers) for the tenant to bear all service charges, expenditure and taxes relating to rented premises, with the landlord receiving a rent net of all taxes, contributions, charges and expenses.

Once again, the law dated 18 June 2014 mentioned above will significantly modify solutions applicable so far by limiting the scope of repairs, expenses and taxes incurred by landlords, which can be re-invoiced to tenants through service charges. A decree listing repairs, expenses and taxes that, by reason of their specific nature, can no longer be re-invoiced by landlords to tenants is to be enacted within the coming weeks.

5.    Assignment and Subletting

For flexibility reasons during the lease term, retailers must pay attention to assignment and subletting provisions.

Pursuant to the provisions of the French Commercial Code, exclusion of the right to assign a commercial lease agreement is void to the extent that it prevents a tenant from assigning its lease to the purchaser of its business. A provision excluding such a right to assign will therefore only be valid when the assignee does not purchase the business carried out by the assignor in the rented premises. Commercial lease agreements may nevertheless provide that the right of the tenant to assign the lease is subject to the prior approval of the landlord. This is usually the case for retail leases for shopping centers where landlords want to manage the merchandising mix. With respect to subletting, and unless the commercial lease agreement provides to the contrary, any subletting, whether of the whole or parts of the rented premises, is prohibited. Tenants usually insist on being granted (and are usually granted) the right to sublet part of the premises to companies within their group.

6.    Technical Reports

Finally, there is an increasing number of technical reports that have been created over the past few years and that must be attached to commercial lease agreements and/or communicated to tenants.

An energy efficiency report, which states the quantity of energy used, or to be used, according to the type of use of the building, has been created. This report is to be communicated by landlords to tenants.

A technical audit record, to bring together information (statements, reports and audits) relating to the safety of the buildings, as well as the health and safety of the occupants, has also been created. Notably, this shall include a statement referring to the presence/absence of construction materials/products containing asbestos, and a risk statement in zones within the perimeter of a plan for prevention of risks or in an earthquake zone.

A specific annex dealing with environmental matters, such as the consumption of electricity and water, is also to be attached when the surface area of the rented premises exceeds 2,000 square meters. There is an increasing trend among landlords of shopping centers to attach such an annex to retail leases for premises with smaller surface areas.

Generally, lease provisions (including retail leases) are freely negotiable in Germany. When negotiating a retail lease, statutory lease law, which is mainly governed by the German Civil Code (Bürgerliches Gesetzbuch (BGB)) will apply, unless agreed otherwise in the lease. Generally speaking, German lease law is more favorable to the tenant, which is why landlords usually try to shift as many responsibilities to the tenant as is legally possible and practicably and/or commercially feasible. In addition to the statutory lease law, there is an extensive body of case law. This consists of the rulings of the German Federal Court of Justice (Bundesgerichtshof) and the German Higher Regional Courts (Oberlandesgerichte) affecting the validity and enforceability of the provisions in retail leases.

Further restrictions apply if the lease provisions qualify as general terms and conditions; if they do, they are subject to particular scrutiny, and have to comply with a specific set of statutory provisions and case law to be valid. These restrictions mainly apply to standard residential leases, but may also influence the validity of standard clauses in retail leases that need to be taken into account when drafting the lease agreement.

Like other leases, retail leases may have an indefinite term, subject to termination within the statutory or contractually agreed notice periods. Generally, fixed terms must not exceed 30 years. A lease agreement providing for a fixed term of more than 30 years will be deemed a lease having an indefinite term after 30 years. The 30-year period is calculated from the day on which the lease term has been agreed or the last time it has been amended. It is, therefore, possible to extend the term of an existing lease for a further 30 years. Hereditary building rights are not subject to any restrictions as to their term.

German mandatory law provides that each lease agreement may be terminated by either party for cause. Generally, a lease can be terminated if the other party is in material breach of contractual obligations. Further restrictions apply to the termination of residential leases and termination due to insolvency.

The term of a retail lease may also be affected if it does not comply with the strict form requirements applicable to commercial leases entered into under German law, pursuant to which a commercial lease with a fixed term of more than one year must be concluded in "written form". If this requirement is not met, the lease may be terminated by either party, regardless of the agreed term, by observing the statutory notice period for commercial leases, which is basically six months from the end of a calendar quarter.

The following issues may result in a breach of the written form requirement: (i) there is no physical connection between all pages and annexes of the lease, or no clear reference between all pages ensuring such a clear connection; (ii) the lease is not duly executed at the bottom of the agreement; (iii) the lease is not duly signed by the authorized signatories; (iv) the lease does not contain all material arrangements between the parties regarding the leased space (e.g., due to the existence of any side letters); and (v) the most recent amendment agreement to the lease has any of the defects listed above, or does not include clear reference to all former amendment agreements and to the lease agreement itself.

The German Price Clause Act (Preisklauselgesetz) prohibits an automatic indexation of monetary obligations. As an exception to this rule, rents under commercial leases having a term of at least 10 years may be linked to the consumer price index (Verbraucherpreisindex) published by the German Federal Statistic Office on a monthly basis, which is typically done with the base rent in retail leases. Sometimes, retail leases provide for stepped rent or a lease review clause to adjust the rent to a fair-market level at the time of renewal or extension.

1.    Models for Multijurisdictional Rollouts

Hong Kong and China’s first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen) are attractive destinations for international retailers. Many international retailers already have shops in Hong Kong and China’s first-tier cities. Recently, more international retailers have been entering the market in China’s second-, third- and forth-tier cities and are expanding there.

International retailers’ entry into the market creates increased competition for older, established retailers. Prime locations are sought after by retailers, and rents are driven up by the increased demand. The increase in rent leads to lower profitability for retailers. The older, established retailers that cannot afford to pay high rents may either be forced to relocate to less-prominent locations or to close down.

Hong Kong retail space commands some of the highest rents in the world, due to sustained large demand and limited new supply. Much of Hong Kong’s retail space is occupied by international brands, including high-end fashion, watch and jewelry stores.

Despite record-high rents, international retailers continue to target core shopping centers and high-street shops as locations for new concept and flagship stores, in order to take advantage of both robust tourism generally and deep-pocketed locals from Hong Kong and mainland China.

The situation is much the same with regard to retail space in China’s first-tier cities. The influx of high-end international brands has increased competition for prime retail space, leading to high rents and landlord-friendly leases becoming the norm.

In China’s second-, third- and forth-tier cities, the demand for retail space is not as strong. There is greater equality of bargaining power between landlords and tenants and, consequently, rents are generally lower and leases not so heavily weighted in favor of the landlord. Nonetheless, with continued economic growth and brands undertaking aggressive global expansion policies into new and emerging markets, the state of the leasing market in second-, third- and fourth-tier cities is moving closer to that of Hong Kong and first-tier Chinese cities.

2.    Key Country-specific Retail Lease Issues

Due to the high demand for, and limited supply of, retail space, leases in Hong Kong and first-tier Chinese cities are very landlord friendly. The following clauses, which have all been introduced by major landlords in Hong Kong and first-tier Chinese cities in recent years, reflect the status quo:

a.    Prescribed Lease Form in China

Some provinces in China have their own prescribed form of lease for landlords and tenants to adopt. The prescribed form of lease is generally tenant-friendly. However, most landlords will prepare a supplemental agreement to replace or vary specific clauses in the prescribed lease.

b.    Reviews of Base Rent and Turnover Rent

Rent under a retail lease will often be made up of a fixed base rent, in addition to a turnover rent calculated as a percentage of the tenant’s turnover. The base rent is usually subject to review periodically (e.g., at the commencement of the renewed term) by reference to a valuation of comparable premises. Unlike base rent, turnover rent is usually agreed at the outset, but, in rare cases, turnover rent can also be subject to review.

By contrast, up until recently, the specified percentage of turnover payable as additional rent would remain the same throughout the term and not be subject to review. However, it is increasingly common for landlords to require that turnover rent, as well as base rent, be subject to periodic review, generally on an upwards-only basis.

c.    No Deduction of Income from E-commerce

Not only is it becoming more common for turnover rents to be reviewed, the methodology for calculating turnover has changed. Some landlords are insisting that the definition of turnover, for the purposes of calculating turnover rent, include not only receipts taken at the property but also all e-commerce-related turnover. This has the effect of increasing a tenant’s turnover figure and therefore increasing its turnover rent.

d.    Sales Targets

Retail leases may provide that the tenant must meet certain specified sales targets. Failure to meet such targets entitles the landlord to terminate the lease.

e.    Radius Clause

Retail leases may place restrictions on the tenant’s freedom to open new stores within a certain radius of the premises.

f.    Marketing Requirements

Pursuant to the lease, tenants may be under an obligation to use their best efforts to market the landlord’s premises, and potentially even treat it as their flagship store. Clauses of this nature require the tenant to carry out store-specific marketing in addition to general brand promotion.

g.    Periodic Redecoration

In addition to any obligations to keep the property tidy and in good repair and condition, a tenant may also be under an obligation to periodically redecorate or refurbish the store to the satisfaction of the landlord, and at the tenant’s own cost.

h.    Termination for Sale or Redevelopment

Clauses that allow the landlord to terminate a lease where it resolves to sell, demolish or redevelop the property are becoming increasingly common. The only restriction on the landlord’s ability to exercise such rights will relate to the required notice period. Where the lease is terminated pursuant to a planned sale or redevelopment, the tenant has no right to object, nor any right to compensation. This can lead to uncertainty and unfairness for tenants, particularly where a tenant has spent money fitting out the property, as this expenditure will not be recoverable once the lease has been terminated.

i.    Prohibition on Assignment

Leases usually prohibit subletting or assignments to third parties. Consequently, tenants are bound by the lease for the whole of its term, leaving them with little flexibility should the needs of the business change. This inflexibility is compounded by the fact that it is unusual for leases to include a tenant’s break clause.

j.    Relocation

Leases of retail premises may entitle the landlord to relocate the tenant to another premises within the same shopping center. The tenant has no right to object, nor any right to compensation, if it is required to relocate. Again, this creates uncertainty, as the tenant may, at the landlord’s discretion, be relocated from premises in a prime location to less-desirable and less-prominent premises within the shopping center. It also gives rise to the possibility of the tenant having to incur additional costs fitting out the new premises.

k.    Store Opening Date

Leases of retail premises may specify a date by which the tenant must commence business there following a period for the fit-out. Particularly in new shopping centers, a landlord will want to coordinate the dates to ensure that all stores open for business on the same day. This deadline puts pressure on tenants to complete their fit-out as soon as possible in order to comply with the specified opening date.

l.    Brand and Merchandise Requirements

Leases of retail premises may specify that a tenant shall only sell from the store products under a certain brand name. Furthermore, it may specify not only the brand but also the types of items that may be sold from the store. This is another example of landlords in Hong Kong and China having significant control over not only a tenant’s use of premises but also its retail operations.

m.    Brand Protection

Some landlords may insist on the inclusion of a statement that it is under no obligation, and accepts no responsibility, in respect of any parallel imports or counterfeit goods sold by any other tenant of the landlord within the shopping center. It will be the tenant’s responsibility alone to police the sale of parallel imports and counterfeit goods by other tenants of the landlord.

n.    Anti-corruption

Many international retail tenants are subject to laws of their own country relating to bribery, corruption, fraud and money laundering (e.g., the U.S. Foreign Corrupt Practices Act (FCPA)). However, landlords are increasingly resisting the insertion of clauses that, first, confirm the landlord recognizes that the tenant is subject to such laws and, second, require that the landlord refrains from engaging in any actions that would violate the anti-corruption legislation.

3.    Adapting to Local Jurisdictions and Customs

Leases in Hong Kong are drafted in English and the language used is generally of good quality. However, leases in China are written in Chinese and can be of variable quality. An English translation may be provided, but, in practice, the translations are often poorly drafted.

4.    Local Taxes and Cost Consideration Issues for Retail Presence and Documentation

Stamp duty is payable on Hong Kong and China leases. The level of stamp duty depends on the rent payable and the length of the tenancy. In China, stamp duty rates vary between cities.

The landlord and the tenant are both obliged to pay stamp duty. In most cases, the parties will pay the stamp duty in equal shares.

5.    Key Licensing and Retail Presence Approval Issues

Tenants in both Hong Kong and China require business licenses to operate retail stores. In Hong Kong, obtaining a business license is, for all intents and purposes, a formality requiring the completion of forms and payment of a license fee. Typically, tenants in Hong Kong do not require any industry-specific licenses (in addition to a business license) except in special circumstances. This contrasts with China, where the requirements of obtaining business licenses and industry-specific licenses are more stringent.

Furthermore, unless the tenant intends to carry out major fit-out works involving structural alterations in Hong Kong, there is generally no requirement for any approval from local authorities. However, in China a more stringent approval process for alterations applies.

6.    Use of Tenant Representatives

It is the norm in both Hong Kong and China for tenants to use an external real estate agent or have an in-house representative look for suitable premises and conduct lease negotiations on their behalf. The authority of the agent or the representative must be clearly defined, so as to ensure that the agent or the representative does not act beyond the scope of his or her authority.

The main feature that characterizes the Italian market when it comes to retail leasing is that there are basically two different ways to obtain an available retail space:

i.    the more traditional way, which is through the execution of a lease agreement; or

ii.    through the execution of a "lease of business" agreement – Affitto di ramo d’azienda.

The main difference between a lease of premises and a lease of business is that, in the latter, the object leased includes not only the premises but also other elements, among which is essentially the trading license. The availability of the spaces, the trading license and, possibly, other elements (such as permits and all the common facilities available in a shopping center) make up the concept of the business ("azienda") that is leased to the tenant.

The lease of business, as opposed to a lease of premises, has traditionally been used in shopping centers/outlets, but it is becoming more and more common also for high-street flagship stores. This is a consequence of historic centers typically having restrictions on granting new trading licenses for shops and, therefore, the structure of a lease of business also being of interest to tenants. Otherwise, tenants would typically prefer the structure of a lease of premises, since (save as indicated in the following paragraph) said contracts are subject to Law No. 392 of 27 July 1978 (Law 392). Law 392 is very favorable to the tenant, as it has the benefit of mandatory provisions affecting duration, renewal, rent reviews, pre-emption rights, goodwill indemnity, tenant’s right to terminate, etc. In contrast, when using a lease of business structure, the parties are not bound by the provisions of Law 392. This allows them to freely agree on all the terms of the agreement, except for general provisions of Italian law. This is why this type of deal structure is mainly preferred by landlords, who, in using it, can avoid the mandatory provisions of Law 392.

On 12 November 2014, the Law 164/2014 liberalizing significant commercial leases came into force in Italy. The law provides that the parties to a lease of premises are no longer subject to the provisions of Law 392 and are, therefore, free to determine the provisions of the lease as they wish, if the following elements are met:

i.    The lease is for non-residential use, including leases for hotels.

ii.    The annual rent is higher than EUR 250,000.00.

iii.    The lease does not concern "premises qualified of historical interest further to a regional or municipality determination".

Essentially, the parties to a lease that meets the abovementioned conditions acquire total freedom in the determination of the contractual terms, having, e.g., the possibility of: establishing a duration of less than six years; agreeing on increases in rent, independently from the traditional mechanisms of cost-of-living adjustments; excluding the loss of goodwill indemnification; excluding the tenant’s right of first refusal for future leases; and differently regulating the tenant’s withdrawal right or the renewal of the agreement.

So far, it remains unclear what the legislator intended to capture by using the expression mentioned under point (iii) above: the lease shall not concern "premises of historical interest further to a regional or municipality determination". In the absence of any clarification from the legislator or interpretation from any authoritative doctrine, it is only possible to hypothesize as to the meaning of the wording. One reasonable interpretation might be that the leased premises shall not have obtained recognition from the region and/or the municipality as a "historic store" (negozio storico or insegna storica). However, for the time being, we cannot even say that the law meant to exclude buildings subject to "indirect constraint’ (i.e., buildings subject to a constraint, which, however, does not trigger the state’s right of first refusal in the event of sale).

1.    Use of Letter of Intent

Parties to lease agreements do not often sign a letter of intent (LOI). Very often, the leased premises are owned by private individuals, who are not used to signing such a letter.

Things change if real estate brokers are involved. Brokers very often push the parties to sign LOIs. However, particular care should be taken in reviewing the LOIs proposed by brokers, as they often draft binding proposals, rather than typical LOIs, which are usually not legally binding (except for exclusivity and confidentiality provisions).

Even when an LOI is signed, the involvement of lawyers is very limited. In most cases, lawyers get involved only after the LOI (if any) is signed.

LOIs are more frequent (although not always signed) in the case of a lease of business, as opposed to a lease of real estate.

LOIs typically include the main business terms of the lease (such as rent, free-rent periods (if any), service charges, duration, right of tenant to early termination, improvements/works/fit-out regime, right to expose signs, and allocation of maintenance expenses).

2.    When is a Lease Transaction Binding?

Under the Italian Civil Code, the agreement is executed at the moment the party who makes the offer receives the acceptance of the counterparty. However, parties can be legally bound to each other even if no agreement has been signed. If the parties have reached an agreement on all the main aspects of the transaction and one of the parties terminates the negotiations without justification, the other party may claim that an agreement was reached and it is binding upon the parties, although it was not in writing and nothing was signed.

Moreover, during negotiations, the parties have a duty to act in good faith. Therefore, a party cannot unreasonably withdraw from a negotiation. Breach of said duty may result in compensation for damages.

3.     Process and Quality of Lease Documentation

Lease agreements are registered with the tax authority within 30 days from execution. If the duration of the lease exceeds nine years, the agreement should be executed before a notary public.

Lease of business agreements should always be executed before a notary public and are public deeds.

4.    Key Licensing and Planning Controls

a.    License to Trade

For shops having a sale area under 250 square meters, the license to trade can be easily obtained, by filing a simple communication with the municipality. For larger shops, the authorization procedure requires more time and there might be restrictions (imposed by local authorities; i.e., the municipality) on the granting of said authorizations (this is typical for historic centers). It is advisable to gather specific information with respect to the possibility of obtaining a trading license before entering into a lease agreement. Also, for this reason, retail spaces are often leased through leases of businesses rather than leases of spaces, because the business will also include the authorization/license to trade in that specific space.

b.    Obligation to Trade

A lease agreement often provides a date by which the store shall be open to the public. However, please note that the obligation to trade is also triggered by the law regarding trading licenses, according to which the licenses can be withdrawn by the competent municipality if the store does not trade for a given period of time.

c.    Restrictions on Competitors

Tenants in both high-street stores and shopping centers/outlets can very rarely place restrictions on competitors.

d.    Operating Hours

Operating hours are regulated by municipality law. Therefore, lease agreements for high-street locations do not normally refer to opening hours.

Lease of business agreements for stores in shopping centers or outlet do normally regulate opening hours.

e.    Staffing and Stocking

Lease agreements for high-street locations do not normally refer to staffing and stocking.

Lease of business agreements for stores in shopping centers or outlets may regulate staffing and stocking.

5.    Typical Rent Structures

The parties are free to agree on the rent without any statutory limitations. However, the rent cannot be increased/varied during the duration of the lease.

Therefore, parties usually structure the rent increase after the first year, there having been a rent reduction for the first year, justified by the costs faced by the tenant for renovation of the store.

Rent is normally indexed annually. Such indexation shall be linked to the Cost of Living Adjustment Index published by the Italian National Institute of Statistics.

In contrast, in the case of a lease of business, the rent is often structured as a fixed part, plus a part linked to the turnover.

6.    Incentives and Key Money

The Italian Supreme Court has excluded the legitimacy of the so-called "key money" paid by the tenant-to-be to the landlord. However, it is not uncommon that a sort of "key money" be paid in the form of an increased rent.

The Supreme Court has admitted the legitimacy of money paid by the tenant-to-be to the current tenant, provided that the landlord is not involved in such a transaction and does not receive an economic advantage from it.

In the event of retail activity (as such activity involves direct contact with the general public), at the expiration of the lease (and save in the event the lease has been terminated by the tenant), the landlord must pay an indemnity to the tenant that is equal to 18 to 36 monthly rent installments, as a compensation for the loss of goodwill incurred as a result of the transfer of the tenant’s going concern to a new location. In the event the retail spaces are used within one year for a commercial activity equal to the one carried out by the exiting tenant, the latter has the right to receive an additional indemnification equal to 1.5 years of rent.

In a lease of business agreement, such indemnity is not due.

Because of the loss of goodwill indemnity payable by the landlord to the tenant at the end of the lease, it is not uncommon that a trilateral agreement is reached among the landlord, the exiting tenant and the new tenant, according to which the exiting tenant agrees to withdraw from the lease (before its expiration) in exchange for key money paid by the new tenant in an amount equal to, or higher than, the loss of goodwill indemnity the landlord should have paid to the exiting tenant in the case of expiration (without renewal) of the lease.

7.    Lease Term and Duration

a.    Duration/renewal

The minimum duration of a lease is six years, while the maximum is 30 years.

Renewal for an additional six years is automatic unless either party gives a 12-month written notice of termination to the other. However, the landlord may terminate the lease after the first six-year term, only if he or she intends to use the premises for himself or herself to conduct a commercial activity or intends to demolish or restructure them. The landlord may also, and usually does, waive his or her right to refuse the request for first renewal.

b.    Tenant’s Termination Rights

The parties can include in the lease the tenant’s right to terminate the lease at will, with at least six months written notice to the landlord.

A tenant has the statutory right to terminate the lease at any time, for a "serious reason", with at least six months written notice to the landlord. A "serious reason" is an event defined by case law as being unforeseeable, not dependent on the tenant’s will, and that has materialized at a time subsequent to the entering of the lease by the parties.

In a lease of business agreement, the parties can freely agree on the duration of the lease.

A termination right would also have to be specifically agreed upon.

8.    Assignment, Transfer and Subletting

a.    Sublease/assignment

Unless otherwise agreed between the parties, a tenant cannot sublease or assign the contract without the landlord’s consent (except within the context of a transfer or lease of a going concern, in which case it is sufficient to inform the landlord by registered letter).

b.    Pre-emption Rights

At the end of the second term, and thereafter in the event of additional renewals, the tenant is granted a pre-emption right if the landlord intends to continue leasing the premises. The tenant may, however, waive such a right in the lease agreement.

Furthermore, and unless the tenant has specifically waived such a right in the agreement, the tenant is granted a pre-emption right in the event of sale of the leased premises.

In a lease of business agreement, any pre-emption right would have to be specifically agreed.

9.    Permitted Use Issues

A permitted use clause is very common, the breach of which normally triggers termination of the agreement.

The tenant should try to obtain a provision as broad as possible (e.g., retail sale of non-food products). However, landlords tend to prefer very specific provisions, also indicating the brand under which trade is permitted, so as to limit as much as possible the possibility of the tenant assigning the premises to third parties through transfers or leases of going concerns (which include the leased spaces).

Please note that the use of the space might also have an impact on the trading license and, in any case, the tenant shall comply with the provisions of said trading license.

10.    Key Landlord Operating Requirement

The main obligations on landlords are to: (i) deliver the premises in a good state of repair; (ii) maintain them in conditions that allow the agreed use of them; and (iii) guarantee the peaceful enjoyment of the premises to the tenant during the lease.

Under the default rule of the Italian Civil Code, the tenant is responsible only for minor repair and maintenance work to the interior of the premises, while the landlord is responsible for the ordinary and extraordinary repair works. The parties are free to agree on how to allocate the expenses. Most commonly, the parties agree that the tenant bears the ordinary expenses of repair, and the landlord bears the extraordinary expenses, although landlords often try also to allocate the extraordinary expenses to the tenant, at least partially.

In a lease of business agreement under the default rule of the Italian Civil Code, the tenant is responsible for ordinary/standard maintenance and repairs, and the landlord is responsible for substantial maintenance and repair interventions. Parties can freely agree otherwise.

11.    Security under Retail Leases

The tenant is normally required to pay a security deposit (in the form of a cash deposit or a bank guarantee). Cash deposits cannot exceed the aggregate of three months rent, whereas such limitation does not require a bank guarantee. Corporate guarantees are normally not accepted by landlords.

12.    Fit-out Contracting and Consultancy Engagement

a.    What is Available and what is the Condition of Space at Handover?

This is totally up to the parties to agree as they wish. Very often, the premises are delivered at row (al grezzo), so as to allow the tenant to personalize the store with its fit-out works.

b.    Planning and Space Issues

In most cases, works to be carried out within the premises need to be approved by local authorities.

c.    Landlord Consent Issues

Most commonly, the agreement provides that any change to the current status of the store may only be made with the prior approval of the landlord. It is very common to agree and attach to the lease agreement the first fit-out that the tenant wants and have it pre-approved by the landlord. Any subsequent change to it involving walls, the floor or another part of the premises is to be pre-approved by the landlord, unless otherwise agreed by the parties. However, landlords are normally not keen on accepting modifications to the premises without their prior approval.

The landlord has the right to require the tenant to deliver the premises back to it at the end of the lease in the same condition as they were in at handover. It would be in the interests of the tenant to negotiate that any change to the premises made by it with the approval of the landlord shall not have to be removed by the tenant at the end of the lease.

13.    Brand Protection in Retail Leases

This is an issue arising only in leases within shopping centers or outlets where landlords require the right to use the tenant’s logo for promotion/marketing purposes. It is advisable, and usually accepted by the landlord, to negotiate that any use by the landlord of the tenant’s logo shall be pre-approved by the tenant.

1.    Types of Leases

There are generally two types of leases in Japan. One is the ordinary lease, with statutory right of renewal except in certain instances, while the second is the fixed-term lease, with no right of renewal.

2.    Lease Terms

There is no maximum term for leases, but ordinary commercial leases are often for two years, and fixed-term commercial leases are usually for five to 10 years. Sometimes, fixed-term commercial leases provide for a fixed term such as five years, coupled with a provision where the landlord agrees to discuss, in good faith, a new lease for the same duration if requested by the tenant within the specified period.

3.    Lease Documentation Process

The lease documentation process usually starts with the letter of intent (heads of terms) and then the actual lease documentation is negotiated. The tenant then submits to the landlord a rental application, together with the executed lease agreement, for the landlord to approve and then to countersign the lease agreement. The security deposit, key money if applicable, and the first month’s rent are usually required to be paid to the landlord when the tenant submits the rental application.

1.    What Laws Regulate Retail Leasing?

Retail lease agreements are regulated, like all other real estate leases, by the Civil Code for each of the respective states of Mexico and the Federal District, all of which are practically the same as they relate to retail leases.

There are no nationality restrictions on holding a lease, and there is no distinction between Mexican and foreign nationals in the process of securing retail space; however, tax implications may vary.

2.    Use of Letters of Intent

Letters of intent are commonly used in Mexico. They are usually negotiated by the parties and their real estate agents, and lawyer involvement is low, though advisable if possible. They are usually non-binding, other than confidentiality and exclusivity provisions, if specifically stated. Letters of intent include the basic economic and commercial terms (premises, rent, rent-free periods, security, indexation, commencement date, term, break options, insurance, property tax, maintenance and marketing budgets, etc.). They vary in the level of detail included. The more detail that can be included (with lawyer involvement) the better, as, while they are generally non-binding, it can become more difficult to negotiate key issues at a later stage if they have not been agreed on in the letters of intent. Any brand-specific requirements should be flagged at this stage.

3.    What are the Key Specific Retail Lease Issues?

a.    Rent and other Lease Payments

Depending on the location, rent can be triple net rent, which includes maintenance, insurance and property tax, where for others, it can exclude property tax.

It is common to have a basic minimum rent with a percentage of gross sales where the basic rent is credited. Basic rent is usually then adjusted in line with the Consumer Price Index on a yearly basis. Rents are typically in Mexican pesos, but U.S.-dollar-denominated rents are not uncommon; in such cases, the Consumer Price Index used for adjustments is typically a U.S. index.

Five-yearly, upward-only rent reviews are the most common ones.

All expenses and management costs (including insurance, marketing and administrative costs) are usually covered by the tenant under a service charge.

b.    Term

There are no maximum or minimum terms by law. Standard retail leases tend to be between five and 10 years.

The Civil Codes typically grant a tenant the right to call for a one-year renewal at the end of the original term of years, unless the landlord objects to such a renewal and demonstrates that he or she intends to use the premises; these provisions may be contractually waived and are typically waived by tenants.

A break clause can be negotiated for either party, but this is less common in retail leases.

c.    Incentives and Key Money

Initial rent-free periods and fit-out contributions are standard tenant’s incentives.

Key money (also known locally as a "guante" or glove) is common in the retail and luxury sector, for flagship store locations, such as Avenida Masaryk and downtown Mexico City, as well as high-traffic retail shopping centers. This varies, depending on the cities and demand for retail space.

d.    Flexibility in Leases

Assignment and (less frequently) subletting are usually permitted only with the prior written consent of the landlord.

There is rarely any change to control provisions, but there are often provisions stating that only the tenant’s brand may operate in the premises under the agreed brand names.

e.    Trading

Leases for retail premises usually include "keep open covenants" (i.e., an obligation to trade). This is very common in shopping centers where turnover provisions apply, but is also the case for prime locations.

Restrictions on competitors and exclusivity provisions need to be negotiated on a case-by-case basis and agreed on in the lease.

Opening hours are often set out in leases, particularly in shopping center leases, and may also be governed by local municipality laws.

f.    Decoration

It is not uncommon to find provisions that internal (and if relevant) external redecoration must be carried out by the tenant every five years.

g.    Yielding Up at End of Term

The premises usually have to be handed back in a full state of repair, with all the tenant’s fixtures and fittings removed.

h.    Fit-out

The fit-out is typically done by the tenant.

At handover, the premises are usually delivered in shell and core.

Fit-out works often require planning permission from the local council, prior to works commencing.

Typically, the design, fit-out and signage are subject to the landlord’s approval, which must not be unreasonably withheld.

i.    Alcohol Products

Luxury brands may wish to serve alcohol (such as champagne) to clients. If the store is selling alcohol, a premises license is needed, as well as an appointed supervisor. An application to the local municipality will need to be made and the cost is typically set by local municipal governments.

If the retail store is giving away alcohol, it would not need to apply for a license, provided that a customer is not under an obligation to purchase something in order to get a free drink.

If soft drinks are sold, these are technically classified as food, so, depending on the municipality, the store would need to register with the municipality as a food business.

4.    What Taxes affect Retail Leasing?

There are no special taxes for retail leases; instead, the following taxes are applicable (as under other real estate leases):

Value-added tax (VAT), which is currently at 16%, is applicable to rental payments under a retail lease agreement. Key money is also subject to VAT.

5.    Registration

Leases of over six years need to be registered with the Public Registry of Property. The lease has to be ratified in the presence of a notary public and registration fees apply. Rates vary from jurisdiction to jurisdiction.

6.    Security

A one- to two-month deposit is typically required. In addition, it is usual for a landlord to require some form of security, such as related entity or personal guarantee, or a surety bond.

1.    What Laws Regulate Retail Leasing?

Retail lease agreements are regulated, like all other real estate leases, by the Russian Civil Code and the federal laws "On State Registration of Rights to Immovable Property and Transactions Therewith" and "On State Cadaster of Immovable Property". Statutory norms stated in the Russian Civil Code and said federal laws are general and applicable to all kind of leases, including retail leases.

Certain specific norms that should be taken into account when negotiating retail leases are stated in some federal laws (as described below) and other normative Acts that regulate trade of goods such as alcohol and tobacco products. In this section, alcohol products means alimental products produced with or without the use of ethanol and containing more than 1.5% ethyl.

Russian law regulates the sale of goods, including luxury and fashion goods, but such regulations refer to sale/trade itself and not to the leasing of the premises for sale of the goods.

2.    What are the Models for Multijurisdictional Rollouts?

With regard to retail leases, Russian law does not distinguish between Russian and foreign participants in the market, and the same statutory norms are applicable to both Russian legal entities and individuals, as well as to foreign legal entities and individuals.

Retail lease agreements can be structured like any other lease agreement and include the same models, i.e.: a preliminary lease agreement for preleasing in a building under construction; a short-term lease agreement (STL), which is a lease agreement made for a term of less than one year (less than 365 days); and a long-term lease agreement (LTL), a lease agreement made for a term of one year (365 days or more) or longer.

STLs do not require state registration and are effective from the moment of signing by the parties. LTLs require state registration and become valid and effective only from the moment they are state registered.

3.    What are the Key Specific Retail Lease Issues?

There are certain statutory norms setting out the requirements for premises in which goods may be sold.

a.    Alcohol Products

The federal law "On State Regulation of Production and Turnover of Ethyl, Alcohol and Alcohol Containing Products and on Restrictions to Consume (Drink) Alcohol Products" (the Alcohol Regulation Law) sets out requirements for premises intended for retail sale of alcohol products (such as wine or spirits).

b.    Leased Premises Located in Urban Areas

Leased premises located in urban areas: (i) must be located in a fix-site (immovable) building; (ii) must be leased for a term stated in the lease agreement, but not less than one year, i.e., under an LTL; and (iii) the area of the retail or warehouse premises may not be less than 50 square meters.

c.    Leased Premises Located in Rural Areas

For leased premises located in rural areas, (i)-(ii) above are applicable. However, the minimum area for shops and warehouses should not be less than 25 square meters.

In addition, the federal executive body of the Russian Federation government may develop special requirements for fixed-site (immovable) buildings in which shops and warehouses for alcohol products can be located.

The Alcohol Regulation Law lists places where retail sale of alcohol products is prohibited. In particular, retail sale of alcohol products is prohibited in educational, medical, sports and military establishments and on their adjacent territories, as well as in public places such as railway stations, bus stations and airports.

d.    Tobacco Products

The Federal Law "On Health Protection of Citizens from Impact of Tobacco Smoking and Consequences of Tobacco Use" (the Anti-Tobacco Law) lists places where sale of tobacco products is prohibited (premises and territories of education, medicine, culture, sports establishments, airports, railway stations, hotels and others). The Anti-Tobacco Law also prohibits the retail sale of tobacco products on premises located within 100 meters of an educational establishment.

Tobacco products may be sold in a shop, which means a building or its portion: (i) which is specifically equipped for sale and provision of services to buyers; (ii) which includes retail, auxiliary and administrative premises; and (iii) which includes premises to accept, store and sell tobacco products.

If a retailer sells alcohol and/or tobacco products prior to leasing premises, it should carefully check whether the premises to be leased and the building in which the premises are located meet the requirements of the Alcohol Regulation Law and the Anti-Tobacco Law.

4.    What is the Regional Jurisdictional Breakdown?

Authorized governmental authorities of the regions of the Russian Federation have the right to place additional limitations of time, terms and places of alcohol trade, including outright prohibition of the alcohol trade. However, regional authorities mostly apply federal statutory requirements.

5.    What is the Retail Lease Legislation Relating to Customs?

Russian customs law provides for certain requirements for the sale of imported goods that a retailer should observe. However, there are no specific customs requirements for retail leases. The landlord, however, may require under a retail lease an agreement that the tenant observes statutory norms for trading imported goods. This would be a contractual agreement of the parties.

6.    What are the Local Taxes for Retail Leasing?

There are no special taxes for retail leases and the following taxes are applicable (as under other real estate leases): VAT, which is currently at 18%, is applicable to rental payments under a retail lease agreement. A tenant normally covers expenses of the landlord for payment of the corporate property tax. The maximum corporate property tax rate is 2% of the cadastral value of the building, which may be reduced by the regional laws.

7.    Key Licensing and Retail Presence Approval Issues, including Governmental Licensing Requirements for Trading

Under the Alcohol Regulation Law, licensing of the retail sale of alcohol products is required. Licenses for the retail sale of alcohol products are issued by the governmental executive bodies of the regions of the Russian Federation. The regions of the Russian Federation may delegate their powers to issue licenses to local authorities. A license issued by one region of the Russian Federation may be effective in the territory of another region of the Russian Federation, provided that such regions of the Russian Federation have a relevant agreement between them.

The Alcohol Regulation Law lists documents that should be provided to obtain a license, including a lease agreement and documents confirming that the premises and building meet the requirements of the Alcohol Regulation Law (as described above).

The authorized governmental authority should issue a license (or give a motivated refusal) within 30 days after receipt of an applicant’s documents. The licenses are issued for a term requested by an applicant. The maximum term of a license is five years. The license may be extended for a term not exceeding five years.

The licenses (issued, suspended or annulled) are recorded with the state register of licenses, which is maintained by the authorized executive body appointed by the Russian government.

8.    Are Tenant Representatives Appointed?

Lease agreements, including retail leases, include addresses and contact persons of the landlord and the tenant. Russian law does not prohibit the parties from appointing representatives for settlement of everyday issues. This should be a contractual agreement of the parties under a lease.

1.    Lease Documentation Process

In the U.S., retail lease documentation is highly standardized, with most major shopping center owners and developers using their own standardized form (with any necessary local law changes added) in their respective states. The documentation is quite extensive, and negotiating a new lease can take anywhere from a week or two to several months. Some regional operators and standalone locations will not have documentation that is as streamlined as that found in larger regional malls. Those transactions often involve more extensive negotiation. In the U.S., retail leases used by major owners and developers will always be in the English language.

There is generally no requirement in the U.S. that a lease be recorded. In fact, it is very rare to record an entire lease, as most landlords and tenants, for confidentiality reasons, do not want the terms of their transaction to be a matter of public record. It is, however, fairly common and, in fact, desirable for significant leases to have a memorandum of lease recorded, in order to protect the tenant from a termination of its lease in the event of a foreclosure by a subsequent mortgage. This is usually a one- or two-page document that describes the basic terms of the lease, such as the parties, term of the lease, extension and expansion rights. The format of these memorandums may vary from state to state, given the different local recording requirements, and will require that they be acknowledged before a notary public.

2.    Key Money

Key money is not a concept that is commonly found in the U.S.

3.    Transfers, Assignments and Subletting

In the U.S., almost all retail leases have restrictions on transfers that are broadly written to include not only direct assignments and sublettings, but also indirect transfers, such as stock and equity transfers. Restrictions usually extend, as well, to encumbering the leasehold estate through financing transactions and to licensing the space. While some leases require the landlord to be reasonable in granting or withholding consent, it not uncommon to see a sole discretion standard imposed.

Lease documentation also usually imposes conditions that the tenant must meet in requesting the landlord’s consent, such as providing copies of the transfer documentation, and background and financial information about the transferee.

Typical carve-outs to the consent requirement are affiliate transactions, mergers and consolidations, and transactions involving the sale of the tenant’s business, as opposed to a single store transfer. Such a carve-out often requires that a minimum number of stores be transferred.

If the landlord consents to an assignment or subletting, there is usually a requirement that any profits the tenant earns on the assignment or subletting be shared with the landlord, usually on a 50-50 basis.

4.    Permitted Use

Permitted use clauses are standard provisions in U.S. retail leases. They will typically specify in a generic way the types of goods that may be sold and often reference the tenant’s brand. If the location is an outlet location, the clause will often specify the price point that goods must be sold at.

In addition, it is typical for the clause to allow for a certain percentage of the space to be used for ancillary purposes, such as storage and back-office use.

Finally, there may be restrictions prohibiting sale of products that may be in competition with other brands or tenants in the specific location.

5.    Operating Requirements

In the U.S., it is not uncommon for larger regional malls to have a marketing and promotional program that may be maintained by the landlord or by a marketing association comprising the various tenants in the mall. Leases will typically provide that the tenant contribute to a marketing or promotional fund on a fixed-cost basis with an annual adjustment. In addition, some leases will obligate the tenant to do its own marketing with specific mention of the shopping center. Larger brands will usually be able to satisfy this requirement through their national marketing programs.

1.    Legislation – What Laws Regulate Retail Leasing?

Law number 20 of 2006 Concerning the Rent of Places and Regulating the Rental Relation between Lessors and Tenants in the Emirate of Abu Dhabi is the law that governs retail leasing in Abu Dhabi, as amended by Law number 4 of 2010.

The legislation is relatively modest and the main provisions are as follows.

a.    Alienation

The tenant is not permitted to assign the lease, or sublet the whole or part of the retail unit, without the written consent of the landlord.

b.    Holdover

If the retail tenant remains in occupation of the retail unit at the expiration of the term without any objection from the landlord, the lease is deemed to have renewed on the same terms and conditions for a similar term.

c.    Termination

The landlord has a right to evict the tenant from the retail unit if the tenant fails to pay the rent as it falls due; assigns or sublets the retail unit without the landlord’s consent; uses the retail unit contrary to the permitted use; permits the retail unit to be used in a way that is detrimental to health, or contrary to public orders or manners; or if the landlord demolishes the retail unit for rebuilding, elevation, additions or alteration (subject to a number of conditions).

2.    Registration

All leases that are entered into in Abu Dhabi must be registered with the Abu Dhabi Municipality. There are two separate systems, Tawtheeq and Tamleeq.

a.    Tawtheeq

Leases with a term of four years or less are registered under the Tawtheeq system. Termination, renewal and surrender are also carried out under the Tawtheeq system.

During the Tawtheeq registration process, a number of details are required, including (but not limited to) the term of the lease, the rent, the contact details of the tenant, the tenant’s trade license details and the details of the individual representing the tenant.

Where the parties have negotiated additional clauses, an attachment of special terms and conditions can be submitted, and these are reviewed by the Legal Affairs Department of the Abu Dhabi Municipality. The Legal Affairs Department has the discretion to reject the terms and conditions if it thinks that they are inconsistent with the general terms of the lease, the legislation and other applicable guidelines. The landlord is responsible for the cost of registration and is not allowed to pass on the cost on to the tenant.

b.    Tamleeq

A lease with a term of four years or more is registered under the Tamleeq system. The Tamleeq registration process and requirements are yet to be confirmed by the Abu Dhabi Municipality. A fee of 1% of the rent during the first year is payable for the registration. The parties can agree who is responsible for the registration cost. Landlords often seek to pass this cost on to the tenant.

1.    Legislation – What Laws Regulate Retail Leasing?

Law number 26 of 2007 Regulating the Relationship between Landlords and Tenants in the Emirate of Dubai, as amended by Law number 33 of 2008, applies to retail leases in Dubai.

In addition, Decree number 2 of 2011 Regarding Rentals in the Emirate of Dubai regulates any rent increases. Administrative Resolution number 134 of 2013 relates to the registration of leases in Dubai.

The main provisions of the legislation are as follows.

a.    Term

The period at which the lease commences and expires must be specified in the lease. The legislation does not provide a minimum or maximum term, other than that a lease of more than 10 years is considered a real property right at law and, therefore, foreign ownership restrictions apply to such interest.

b.    Holdover

If the tenant remains in occupation of the retail unit at the expiration of the term without any objection from the landlord, the lease is deemed to have renewed on the same terms and conditions for one year or the term of the original lease (whichever is less).

c.    Renewal Terms

A tenant is able to renew a lease, except in limited circumstances. Any such renewal will be on the same terms and conditions (including rent) unless notice is served, by either party on the other, as to any changes at least 90 days prior to the expiry date, and those changes are agreed. Failing agreement, the matter may be referred to the relevant tribunal in Dubai.

At law, the landlord may only evict the tenant upon expiry of the tenancy contract in the following cases:

i.    if the landlord wishes to demolish the property for reconstruction or to add new constructions that prevent the tenant from benefiting from the leased property;

ii.    if the landlord of the property wishes to sell the leased property;

iii.    if the property requires renovation or comprehensive maintenance that cannot be executed while the tenant is occupying the property; and/or

iv.    if the landlord wishes to recover the property for use by him or her personally or by his or her next of kin.

The landlord must notify the tenant of the reasons for eviction at least 12 months prior to the determined date of eviction.

d.    Maintenance

The landlord is responsible for the maintenance of the property, and must rectify any defects or faults that affect the tenant’s intended benefit of the property.

e.    Approvals

The landlord is obliged to provide the tenant with all approvals required by the authorities to carry out decoration or other works that require the authorities’ approval.

f.    Alterations

The tenant requires the landlord’s permission for carrying out any changes, renovation or maintenance works once it has obtained the relevant approvals from the competent authorities.

g.    Alienation

The tenant must not assign the lease or sublease the retail unit without the prior written consent of the landlord.

h.    Eviction During the Term of the Lease

The landlord has a right to evict the tenant during the term of the lease in a limited number of circumstances. These include if the tenant has not paid the rent within 30 days of the landlord notifying it of the need for payment or if the tenant subleases the retail unit without the landlord’s written consent.

i.    Rental Increases

Any rental increases made by the landlord must be in accordance with the rental index, which is prescribed by the Real Estate Regulatory Authority (RERA). The rental index is a tool that determines the rents of properties across Dubai and provides the percentage of the permitted maximum rental increase.

2.    Registration

All leases that are entered into in Dubai must be registered. A lease with a term of less than 10 years is registerable on the Ejari register, which is managed by RERA. A lease with a term of 10 years or more (up to 99 years) is registerable with the Dubai Land Department (DLD) on the Real Property Register.

A fee equivalent to the value of 4 percent of the rent contract is payable for the registration of the long-term lease with DLD. A nominal fee of approximately AED 195 is payable for the registration of a short-term lease on the Ejari register.

1.    Use of Letter of Intent

With lease negotiations in the region often being protracted, it can be costly and time consuming if the main provisions are not agreed at the outset. It is, therefore, better if the parties agree as many provisions as possible at the start. Letters of intent are commonly used in Dubai, and are often negotiated by the parties or commercial real estate agents. It is becoming increasingly common for lawyers to be instructed on a letter of intent for a larger shopping mall, where the terms are often more complex.

2.    Agreement for Lease and Lease

With a number of malls and developments under construction in the United Arab Emirates, it is very common for an agreement for lease to be entered into by the parties, with a schedule of the main lease attached.

The agreement for lease provides that a number of conditions are to be fulfilled before the lease will take effect. Such conditions are normally the landlord carrying out works and providing vacant possession. The tenant often has a right to enter the premises and carry out any relevant tenant works. The parties normally agree a date by which the conditions must be satisfied.

The lease is usually signed by both parties and held in escrow until completion, when it is dated and becomes legally binding. This can cause issues for tenants new to the market, as the authorities require a copy of a signed lease before issuing a trade license. In turn, this can delay the tenant in obtaining utilities for the premises (where they are not provided by the landlord) and setting up bank accounts for the company.

Due to this, there has been a recent change to the agreements being entered into in a number of the larger developments, with the agreement for lease and the lease being combined in one document.

3.    Market Trends Relevant to Retail Leases

a.    Rent

In shopping centers, it is usual for turnover rents to be payable, in addition to the basic rent. A service charge is normally payable by the tenant to the landlord, which will cover management costs, insurance, marketing and administrative costs.

b.    Term

Retail leases in shopping centers in the United Arab Emirates normally have a term of approximately five to seven years. Smaller developments often have shorter terms. Tenant renewal rights are common, subject to the rent being reviewed.

c.    Incentives

Rent-free periods are common, while fit-out contributions by the landlord are rare.

d.    Flexibility

Market practice dictates that alienation is permitted only with the prior written consent of the landlord. In more sophisticated shopping center leases, change of control provisions are common.

e.    Trading

"Keep-open provisions" are common in shopping center leases, and there will often be restrictions on products or services, to ensure that they comply with Islamic law and customs. The sale of alcohol and pork is only permitted with a special license that is granted by the authorities (at their sole discretion). There are a number of conditions in obtaining such a license: e.g., the products must not be sold to a Muslim and the retail unit must be linked to a hotel. It is common for parties to negotiate restrictions on competitors, as well as exclusivity provisions.

f.    Decoration

Internal decoration obligations on the tenant are common.

g.    Yield Up

The tenant is usually obliged to return the retail unit to the landlord in the condition that it was received at the commencement of the term. The tenant is normally responsible for the cost of yielding up.

h.    Fit-out

Often, the tenant is responsible for obtaining the relevant licenses, consents and approvals from the authorities for undertaking the fit-out works. The landlord is commonly required to "assist" the tenant in obtaining such licenses and/or approvals.