Retail Leasing Disclosure Obligations
When leasing commercial property, it is important for tenants and landlords to understand the relationship they are entering into and their rights and obligations.
In Queensland, retail leases are regulated by the Retail Shop Leases Act 1994 (Qld) (‘the Act’).
Broadly, and subject to some exclusions, the Act applies to premises located in a retail shopping centre and / or premises that are used wholly or predominantly for conducting a retail business.
With the increase in the number of retail shopping complexes over the years, the Act was introduced to foster efficiency and fairness in the retail leasing industry, and to enhance consumer protection for tenants. Consequently, retail leases are governed by specific rules to promote transparency before and during lease negotiations, and throughout the term of the tenancy.
Landlords and tenants to a retail leasing transaction have specific disclosure obligations.
This article outlines the information the parties must exchange during leasing negotiations, and the consequences if landlord disclosure requirements are not met.
Landlord disclosure obligations
A landlord is required to provide a prospective tenant a copy of the proposed draft lease and a disclosure statement at least 7 days before a new retail lease is entered. This is determined as the earlier of the date the lease becomes binding between the parties, or when the tenant takes occupation of the premises.
A tenant may waive the 7-day timeframe by providing a written notice and (for tenants who are not major tenants) a certificate stating that the tenant has been legally advised of the effect of the waiver. The landlord is still required to give the disclosure statement prior to the prospective tenant entering the lease.
A current (updated) disclosure statement must also be served within 7 days of receiving a tenant’s notice to exercise an option to renew a lease, unless this requirement is waived by the tenant at the time the renewal notice is given.
A tenant who has not waived the requirement for an updated disclosure statement, may withdraw from the option within 14 days of receiving the disclosure statement, despite already having exercised the option, and regardless of whether the renewed lease period has commenced.
Similar disclosure obligations are required of a tenant who assigns its lease . Unless the assignee (new tenant) waives the requirement, a disclosure statement and copy of the current lease must be provided 7 days before the assignment takes place.
What does the disclosure statement contain?
The disclosure statement outlines important information about the lease. It includes details of:
- the premises to be leased, amenities, shared facilities and services such as air conditioning, cleaning, maintenance;
- the term of the lease and renewal options;
- the rent payable including turnover rent;
- rent reviews and the method for calculating rent increases;
- the tenant’s estimated liability for outgoings;
- tenant's fitout requirements;
- relocation or demolition clauses and information regarding planned future works;
- specific information for shopping centre leases such as trading hours, annual sales for the centre, turnover for speciality shops per square metre, traffic count, and lease termination dates for anchor tenants.
Consequences of not conforming with disclosure obligations
Failure to provide a disclosure statement or giving a defective disclosure statement enables a tenant to give written notice to terminate a new or renewed lease within 6 months of entering or renewing it (unless the requirement is waived with the renewal notice).
A disclosure statement is defective if it is incomplete, contains a material omission, or contains false or misleading information that is material to a particular matter. A tenant may not terminate a lease for an alleged defective disclosure statement if the statement merely omits irrelevant material or is not in an approved form.
In addition to termination, a tenant may have a right to reasonable compensation for loss or damage suffered on the grounds of false or misleading statements or misrepresentations made by the landlord or its agent.
Compensation may also be payable if the retail premises are not ready for occupation on the date specified in the disclosure statement, due to the fault of the landlord or its representative.
Landlords must itemise all outgoings in the disclosure and lease documentation and provide accurate estimates of the tenant’s liability for these items. The Act prohibits or limits the landlord requesting contributions for certain expenses such as common area expenses. The landlord must follow specific accounting requirements with respect to calculating and requesting certain contributions from the tenant.
Lessee’s disclosure statement
The Act also requires proposed new tenants to provide certain disclosure information.
A prospective tenant who is not a major tenant must, before entering into a retail lease, provide the landlord with a financial advice report and a legal advice report.
Parties to a retail leasing arrangement should be conversant with their rights and obligations under the Act.
Landlords should ensure that leasing and disclosure documents are carefully prepared with consideration to the content and service requirements. Failing to follow the correct processes or providing incomplete or inaccurate documents can have very costly results