On 25 November 2016 a series of amendments to the Retail Shop Leases Act which came into effect . The amendments are the result of a statutory review carried out in early 2015 and include a mix of measures designed to ease red tape and enhance protections.
A summary of the more important amendments follows below.
Leases to be excluded from the act
- Tenancies of large premises (greater than 1000m2) are to be excluded from the Act’s requirements. Under the previous law, a large premise was only excluded if the tenant was a listed corporation or a subsidiary.
- Leases to non-retail businesses in a retail shopping complex are excluded where 25% or less of the total lettable area of the level on which the premises are located (for multi-level buildings) or 25% of the total lettable area of the building (for single-level buildings) is used for retail business purposes.
- Leases/licences for ATM’s and vending machines are excluded from the Act.
- Retail shop leases for a business conducted by the tenant on behalf of the landlord are to be excluded from the Act.
Greater disclosure obligations
- Landlords will be required to give a current disclosure statement to a tenant within 7 days of the exercise of an option. The tenant then has a 14 day period to withdraw the option exercise notice. If a current disclosure statement is not given or is defective, the tenant has a right to terminate the option lease within 6 months.
- Landlords can be required to give updated disclosure statements to a tenant who wishes to sublease (or if the lessee is a franchisor, grant occupation rights to a franchisee)
- Landlords will need to make available to tenants a marketing plan detailing their proposed advertising and promotion expenditure. An audited statement of landlord promotion expenditure must be given to tenants within 3 months after the end of each accounting period.
Further tenant protections
- Tenants will only be required to refurbish retail shop premises during the lease term where the lease gives sufficient details of the nature, extent and timing of the refurbishment requirements.
- The release of a tenant that assigns a lease will also be taken to release the tenant’s guarantors.
- Landlords will be made liable for the cost of obtaining consent from a mortgagee and the costs of complying with the Act
- Any unspent promotion funds must be carried forward to the next accounting period.
Benefits to landlords
- There is an ability for a tenant to waive the 7 day disclosure period (with legal advice if not a major lessee).
- Landlords will be able to recover lease preparation costs where the tenant has negotiated, but does not proceed with, the final lease after instructing it to be prepared.
- Landlords will no longer be liable to compensate tenants for business disruption where the landlord’s action is a reasonable response to an emergency.
- Compensation to tenants will be able to be limited for anticipated disruptions to business that occur within one year of entering into the lease provided required details are given before the lease is entered.
- Insurance excess payments are now expressly excluded
- A landlord’s annual estimate and audited statement of outgoings will need to provide a breakdown of centre management fees including fees paid to the manager of the centre.
- A tenant can withhold outgoings payment until the required outgoings estimate and audited statement have been given.
- The total area of the shopping centre for outgoings apportionment purposes will exclude areas leased or licensed for:
- Information, entertainment, community or leisure facilities
- Telecommunications equipment
- ATM’s or vending machines
- Advertising displays
- Seating, tables and other furniture
- Trade out areas, storage and parking
- An assignor of a lease must give the assignor a disclosure notice and a copy of the lease at least 7 days before the business sale contract is entered into.
- Tenants will have increased flexibility to waive the landlord’s disclosure period.
- Tenants with five or more retail shops in Australia will have a simplified process for waiving disclosure periods and mandatory rent provisions.
- Procedural requirements are to be relaxed where the State, the Commonwealth or a local government is the tenant.
Given the complexities in this area of law and the new amendments, we recommend that landlords and prospective tenants apprise themselves of the new provisions and seek legal advice before executing any leases.
At Calvados + Woolf we have a team of property specialists able to answer your questions and ensure that your interests are protected at all times. Call our Fortitude Valley or Upper Mount Gravatt offices anytime for an appointment or if you simply need more information.