Demolition clause in a retail lease

Sample clause

Written for a retail lease between the owner of a fictional Hobart arcade and Folio Street Books, a fictional independent bookshop.

Demolition. (a) The Landlord may terminate this Lease if it genuinely proposes to demolish the Building, or to carry out works that cannot practically be done without vacant possession of the Premises. (b) The Landlord must give the Tenant at least 6 months' written notice of termination, with details of the proposal sufficient to show it is genuine, including any planning or building approvals obtained or applied for and the expected start date of the works. (c) The Landlord must not give notice under this clause during the first 3 years of the Term. (d) If the Lease is terminated under this clause, the Landlord must pay the Tenant the written down value of the Tenant's fit out, calculated on a straight line basis over the original Term, within 30 days after the Tenant vacates.

Sample wording, not legal advice.

Variants

What to negotiate

• Genuine proposal evidence

  The risk for a tenant is a landlord using a demolition clause to get rid of it for another reason. The clause should require details of a genuine proposal: plans, approvals sought, a timeline. Retail leases laws require details of the proposed demolition to be given with the notice, and a tenant can challenge a notice that is not genuine through the small business commissioner or the tribunal.

• Notice

  Six months is the usual minimum for retail leases in several states, and tenants with large fit outs or hard to replace locations should negotiate more. A clause that bars notice during the first years of the term, as the sample does, gives the tenant time to earn back its fit out before it can be asked to leave.

• Compensation

  Without a compensation term, the tenant may lose its unamortised fit out and the goodwill of the location. Tenants should ask for the written down value of the fit out and reasonable relocation costs. Some state laws give compensation rights in limited cases; the lease can always provide more.

The risk of leaving it out

Without a demolition clause, a landlord generally cannot end a lease early to redevelop, so it must wait for the term to expire or negotiate a surrender, often paying the tenant to leave. For the tenant, the absence of a clause is valuable security. For a landlord planning redevelopment, an undisclosed or missing clause can delay the project for years.

Notice and compensation by state

Victoria: under the Retail Leases Act 2003, a retail lease can be terminated for demolition only if it contains a demolition clause and the landlord gives at least 6 months' written notice with details of the proposed demolition. Most other states regulate demolition termination in their own retail leases laws, typically requiring the clause to be in the lease and disclosed, a minimum notice period, often 6 months, and details of the proposal, and some give tenants compensation in certain circumstances. Because the details differ and change, check the current Act and the state small business commissioner's guidance before relying on a clause. Law checked on 21 October 2026. This page explains how the clause works and is not legal advice.

What counts as demolition

Retail leases laws generally define demolition widely enough to include substantial repairs, renovation or reconstruction that cannot practically be carried out without vacant possession. A cosmetic refurbishment that could be done with the tenant in place should not qualify. The sample limits the clause to works that cannot practically be done without vacant possession of the premises, which follows that approach.

Disclosure before signing

A landlord should tell a prospective tenant about any known redevelopment plans and draw attention to the demolition clause, both in the disclosure statement and in negotiations. A tenant who was assured there were no plans may have a claim for misleading conduct if a demolition notice follows soon after. The third variant puts such an assurance in the lease itself.

Planning the exit

A tenant that receives a demolition notice should check it meets the lease and the Act, start looking for premises early, record the fit out's cost and condition for any compensation claim, and ask about relocation within a redeveloped centre. Small business commissioners can mediate disputes about whether a proposal is genuine or about compensation.

Documents that carry this clause

Commercial lease agreement template with outgoings and fit out termsA retail lease is decided by three numbers and two clauses: the rent, the review, the outgoings, the fit out contribution and the make good. This 12 page Victorian lease sets all five out in the open, including the outgoings the landlord is not allowed to recover at all.Farm lease agreement template with grazing rights and a fencing tableA grazing lease is a bet on country, and the two things that decide whether it was a good one are the stocking rate and who fixes the fence. This three year lease over 240 hectares caps stock in dry sheep equivalents, ties ground cover to a measurement twice a year, and puts every improvement in a table with a name beside it.Storage unit rental agreement with access hours and a lien clauseSelf storage looks like a lease and is not one, which is why the agreement has to say what it actually is before it says anything else. This one opens by calling itself a licence to store goods in a space, then sets the access hours, the prohibited items and the exact sequence that happens when the account falls behind.

Questions people ask