Retail Shop Leases Overhaul: Good news for you?
Legislation has recently been introduced into Parliament* which will significantly amend the current Retail Shop Leases Act (the Act) if passed. The proposed changes are a culmination of a lengthy statutory review process which first commenced in 2011. If passed, the amendments will impact both landlords and tenants, so what do you need to know? Read on to find out…
- Although Landlords will still be unable to pass on their legal costs for preparing the lease in most circumstances, these costs will be able to be passed on where tenants ‘pull out’ of the deal after the final lease has been agreed and presented to the tenant for signing, which should discourage tenants from ‘stringing a landlord along’ during negotiations if they do not intend on signing the lease.
- The definition of a ‘retail shop’ will specifically exclude shops with a floor area of more than 1000m2 - shops of this size are usually leased by national franchises specialising in bulky goods, who arguably do not need the protections of the Act (which is designed to protect ‘mum and dad’ tenants).
- Landlords will no longer be liable to compensate tenants for business disruption where the landlord’s actions are a reasonable response to an emergency or required to comply with a statutory duty.
- Upon exercising an option, the landlord must give the tenant a renewed Lessor Disclosure Statement within seven days - this will provide increased transparency regarding outgoings and any upcoming plans which the landlord might have to renovate or demolish the centre, as these details must be included in the Lessor Disclosure Statement. The tenant will then have 14 days in which they can withdraw their notice exercising the option without penalty.
- Personal guarantors will now be automatically released from their guarantee obligations upon an assignment of the lease, provided the disclosure requirements in the Act are complied with. Currently releases of personal guarantors must be negotiated on a case-by-case basis.
- Landlords will be unable to pass on the costs of obtaining their mortgagee's consent to the lease - these fees range considerably, but can be anywhere from $200 to $1000.
- The requirement for a tenant under a turnover lease to give the landlord monthly turnover certificates and an annual audited statement of turnover has been removed, which will eliminate these accounting expenses for tenants.
- The definition of ‘retail shop’ has also been amended to exclude leased areas used for ATM’s, vending machines, advertising and parking - given the nature of these leases, it makes sense from a practical perspective for these leases not to have to comply with the onerous requirements of the Act. The definition has also been amended to include exemptions from the Act for non-retail shops located in shopping centres in certain circumstances (the Act currently applies to all shops in shopping centres, regardless of whether or not they sell retail goods or services). The eligibility for these exemptions will be based on the overall tenancy mix of the shopping centre.
- The Act will not apply to ‘short-term’ retail leases, where the total of the lease term and any option periods is less than six months - given that the risks and costs associated with these leases are lower, it makes sense that the Act will not apply.
- A new provision has been included which gives tenants the ability to waive the seven day timeframe which a tenant must wait after receiving a Lessor Disclosure Statement from a landlord prior to signing the lease.
- The disclosure process relating to a potential assignment of a lease has been significantly simplified.
The Education, Tourism and Small Business Committee is expected to table a report regarding the proposed amendments following a public consultation process on 5 February 2016. The report will likely include a recommendation as to when the new legislation should commence.
Please stay tuned for further CG Law updates in 2016.