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Major changes to exercise of options under Retail Shop Leases Act (‘RSLA’)
Exercise of option by lessee
If a lessee has an option to renew a lease for a further term, it is vital that the lessee diarise the date by which it must exercise the option, and exercise its option strictly in accordance with the procedure specified in the lease.
If a lessee fails to exercise its option in the exact manner provided for in the lease (usually in writing, delivered or sent to the lessor by the due date) the lessee loses the right to exercise the option.
Valid exercise of option, but lessee in breach of lease
Under the provisions of the Property Law Act (which still applies to commercial leases, including retail shop leases), if the lessee exercises an option by the due date, but is in breach of the terms of the lease, and the lessor relies on the breach to refuse to accept the exercise of option, the lessee may apply to the Court for relief, which may be granted on various terms (including that the lessee must rectify the breach).
New obligations of lessor, and consequences of failure to comply !
The most recent amendments to the RSLA changed the law in relation to options in retail leases, and impose additional requirements on a lessor, providing additional protection for lessees and costing further obligations on lessors.
Previously under the RSLA a lessor was required to give the lessee a notice of the option date (at least 2 months, but not longer than 6 months, before the option exercise date).
Under the amendments effective from 25/11/2016:
- the lessor must in addition to giving the lessee prior notice of the option date, give the lessee an updated disclosure statement (within 7 days of the lessor receiving notice of the lessee’s exercise of option, unless the lessee gives the lessor a waiver notice when the lessee exercises its option);
- the lessee is able to withdraw its exercise of option within 14 days of receiving the updated disclosure statement (whether or not the renewed lease period has commenced).
The amendments also provide that:
- a lessee may now terminate a retail shop lease granted on exercise of an option by giving written notice to the lessor within 6 months after the lessee enters into the lease, if the lessor:
- does not give a disclosure statement on time; or
- gives a disclosure statement that is incomplete or contains false or misleading information (defective statement).
- the lessor is liable to compensate to the lessee for any loss or damage the lessee suffers because of the lessor’s noncompliance, or provision of a defective statement.
It is VITAL that the lessor be aware of its obligations and be in a position to be able to give such a lessor disclosure statement promptly.
[From experience we often find that it takes the lessor quite some time to bring together the sometimes extensive information required to complete an RSLA disclosure statement.]
It is very important that all lessors of retail premises are aware of these new requirements and diarise appropriate dates to ensure compliance with the legislation.
Our comments above are of general application only, and should not be relied on as being applicable to your particular circumstances.
We suggest you contact us to discuss your particular circumstances well prior to option expiry dates, not only to make sure you comply with RSLA legislation, but to make sure that your interests are protected.
If you or someone you know needs more information or needs help or advice, please contact us on (07) 5443 4866 or email kwaddington@gwlaw.com.au.
Ken Waddington
Partner
(07) 5443 4866
Nicole Downs
Solicitor
07 5443 4866