Law Changes for Retail Shop Leases
Landlords, tenants and managing agents need to be aware of new provisions under the revised Retail Shop Leases Act 1994 (‘the Act’).
The Retail Shop Leases Amendment Act 2015, taking effect on 25 November 2016, triggers new considerations when entering into a lease. The changes are intended to uphold present consumer protective provisions, whilst clarifying some areas of confusion and streamlining processes between landlords and tenants.
The changes made by the amending Act are far reaching and important.
Definitions of retail shop lease have changed
The amendments exclude some new categories of rentals from the application of the Act including:
- premises with an area greater than 1000 square metres irrespective of the entity of the tenant (previously only some corporate tenants were excluded from this category);
- non retail businesses (for example a doctor’s surgery) located in a mixed complex if the building in which the business is situated contains 25% or less retail area for single storey developments, or for multi-storey developments, 25% or less retail area on the level on which the business is situated;
- common areas of retail centres in which ATMs, vending machines or advertising displays are located.
Disclosure statements – when are they required?
Disclosure statements have always formed part of the retail leasing process, however there has in the past been confusion over their timing and contents. The new definition clarifying when a lease is ‘entered into’ is hoped to assist parties understand when a disclosure statement must be provided, with other amendments anticipated to streamline the overall process.
Normally, a landlord must give a tenant a disclosure statement 7 days before entering into a new lease. The new provisions allow tenants to waive the 7 day requirement by giving a waiver notice and report stating that the tenant has been legally advised of the effect of the waiver. The new provision modifies the timeframe but not the requirement for the landlord to provide a disclosure statement before a new lease is entered into.
Landlords must also serve a disclosure statement within 7 days of receiving a tenant’s exercise of option to renew a lease. In this instance, the tenant may completely waive the requirement for a disclosure statement without the need to provide the legal advice report.
Importantly, unless the disclosure requirement is waived, a tenant is now able to withdraw from an option to renew within 14 days of receiving the disclosure statement, despite already having exercised the option. This gives a tenant a final opportunity to assess the viability of the lease and opt out, without the need to give any reason.
What if there is no disclosure or the disclosure is defective?
Landlords failing to provide a disclosure statement or giving a defective disclosure statement give tenants the right to terminate a new lease within 6 months of entering into it, or within 6 months of a lease that has been renewed (unless the disclosure requirement is waived with the renewal notice).
These rights are reinforced in the amendments, however new provisions set out a process to follow enabling a landlord to object to a tenant’s termination notice.
Under the present Act a disclosure statement is defective if it omits information or does not comply with an approved format. The changes now provide that a disclosure statement will only be defective if it contains an omission that is material or contains false or misleading information that is material to a particular matter. This means that a disclosure statement will no longer be defective merely because it omits information irrelevant to the lease, or does not conform to a specific format.
New compensation provisions
Tenants should be mindful of amendments which could limit their recourse to compensation. Tenants must provide written notice of a claim for loss or damage under the lease as soon as practicable after the loss or damage is suffered. Any delays to do so will now be taken into account in assessing compensation.
The amendments also confirm that compensation will not be awarded for action taken by landlords responding to an emergency, complying with a statutory duty, or if the landlord prevents a tenant from extending its trading hours.
Landlords have previously been prevented from including terms in a lease that attempt to limit compensation payable in the event of a disturbance. The amendments now allow a lease to incorporate provisions limiting compensation for disturbances anticipated to occur during the first year of the lease. Landlords must provide written notice of the foreseeable disturbance before the lease is entered into which must include specific details of the likely nature, timing, duration and effect of the disturbance. These provisions are expected to be incorporated into leases for premises that are under construction or redevelopment.
Other important changes
- Landlords may not recover costs from tenants relating to obtaining the landlord’s mortgagee’s consent to the lease or any other dealing.
- Tenants may be liable for a landlord’s legal fees if they give written instructions for a lease to be prepared then fail to proceed after it is prepared.
- Landlords wishing to recover promotion and marketing fees as an outgoing must provide an annual marketing plan to the lessee setting out the proposed marketing budget for each accounting period.
- Certain common areas, if not licensed or leased, used for ATMs, advertisement displays, seating and furniture, storage and parking, are excluded from the total lettable area calculations for outgoings and centre management costs.
- Excess payments on insurance claims may not be recovered as an outgoing.
- Landlords requiring premises to be refurbished during the term of a lease must set out specific details of the required refurbishment otherwise these provisions may not be enforceable.
The new provisions are extensive and impact on both landlords and tenants. The above is just a very short summary of some of the changes, and we recommend anybody involved in or looking into a retail leasing arrangement obtain legal advice tailored to their specific circumstances.
For landlords, lease precedents should be reviewed to ensure they conform with the new provisions and, where relevant, clauses included to limit compensation in the event of foreseen disturbances in the first year. Processes regarding disclosure, calculation of outgoings and the provision of marketing plans (if applicable) will also need attention.
Tenants should be familiar with the modified disclosure processes, their duties to give timely notice for claims and potential liability for lease preparation costs if not proceeding with a lease.
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