Petrol Station leases: Key considerations before signing on the dotted line

Introduction

The lease for a petrol station premises is unique. There are several issues specific to the nature of the business that need to be considered, together with usual issues relating to any premises.

Key considerations for would-be Tenants

These are the most important factors that potential Tenants should consider before signing a lease for a petrol station.

1) Application of the Retail Leases Act

In Victoria, leases that exceed 15 years (excluding any options for renewal) and which impose certain specific obligations on a Tenant or another person may be excluded from the application of the Retail Leases Act 2003 (Vic) (RLA). Petrol Station leases are usually longer in duration, in order to match fuel supply agreement timeframes, and consideration must be given to whether the lease terms result in the exclusion of the RLA. The RLA exclusion would usually not be beneficial to a Tenant.

2) Ownership and Maintenance of Fuel Equipment and Infrastructure

The infrastructure and fuel equipment associated with a petrol station usually comprise:

a) above-ground assets such as the dispensing pumps; and

b) underground assets such as the tanks and lineworks.

Usually, the above assets are Landlord installations and are included within the items to be leased to a Tenant. If a new petrol station is to be developed, the equipment and infrastructure may be a Tenant installation. Even if the infrastructure and fuel equipment are Landlord installations, Landlords can require these to be installations to be maintained and repaired by Tenant. The extent of such repairs and maintenance would need to be negotiated and the condition of the equipment and infrastructure at the time of the lease commencement should be established for a baseline.

3) Landlord Insurances

Given the risks associated with the operation of a petrol station, it is common for Landlords to require additional requirements so that the Landlord's insurance is not adversely impacted by the operation of the business on the premises. Some petrol station premises also have other businesses such as food trucks operating from the premises. Ensuring on-going, sufficient insurance coverage is fundamental.

4) Environmental Compliance and Make-Good

To determine make-good obligations on expiry of the lease term, an environmental assessment is usually required to be undertaken at the commencement of the lease and at the expiry of the lease, with the costs for such assessments to be negotiated between the parties. Usually, the Landlord will bear the costs for the initial report and the Tenant will bear the costs for the report at expiry. The obligations of each party should be clearly set out in the Lease.

Given the increased likelihood for land contamination, especially when the lease runs over several years, Landlords will usually require a Tenant to do the following:

1. comply with all relevant environmental and contamination requirements including remediation at the direction of the government bodies and authorities such as the Environment Protection Authority (EPA);
2. have on-going obligations for undertaking and completing various tests on the premises to identify any fuel loss and possible contamination as soon as possible;
3. notify the Landlord and/or other authorities of the occurrences of certain events on the premises; and
4. indemnify the Landlord for the Tenant's failure to comply with the leases so the Landlord is not out-of-pocket given that the Landlord is not in occupation of the premises.

How Sharrock Pitman Legal can help?

There are extensive regulations governing the leases of leases in Victoria. When the property is a petrol station, not surprisingly, there are additional obligations on both the Tenant and the Landlord to ensure that environment and safety standards are met.

With this in mind, if you are considering entering into a lease arrangement for a petrol station, we recommend seeking professional advice so that you are fully aware of your obligations under the lease as well as ensuring that your operations are compliant with the EPA and other relevant acts.

Our Accredited Specialist Property Law team advises commercial property Tenants and Landlords, and has particular expertise in leases subject to environmental regulations.

Please do not hesitate to contact us on 1300 205 506 or email property@sharrockpitman.com.au.

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‍The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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