Amendments to Retail Shop Leases Act Passed

Amendments to Retail Shop Leases Act Passed

The legislation to amend the Retail Shop Leases Amendment Act was finally passed this week, after years of consultation and process. The amendments to the Act take effect in 6 months time, meaning that Lessors and Lessees must ensure they are across the new requirements by this time.

The key changes to rights and obligations of Lessors and Lessees are set out below.

Lessor Disclosure Period

The Lessee will now have the ability to waive the 7 day Lessor Disclosure period, subject to the following requirements:

  • The Lessor still needs give a Lessor Disclosure Statement and draft Lease to the Lessee;
  • The Lessee needs to give the Lessor a Legal Advice Report signed by the Lessee’s solicitor and the Lessee (except unless the Lessee is a ‘major lessee’, meaning that it leases 5 or more retail shops within Australia); and
  • The Lessee needs to give the Lessor a signed waiver notice.

Disclosure Upon Lease Extensions

Presently under the Act when a Lessee exercises its option to extend the term of the Lease, the parties are not required to provide each other with disclosure. Under the amendments, parties must now give each other disclosure at such time.

Within 7 days of the Lessee exercising its option to renew the Lease, the Lessor must provide the Lessee with a Lessor Disclosure Statement. Within 14 days of the Lessee receiving a Lessor Disclosure Statement, the Lessee may elect to withdraw its renewal notice and effectively undo the exercise of its option. The only exception to the Lessor needing to give the Lessor Disclosure Statement is if the Lessee provides the Lessor with a waiver notice at the time of exercising its option.

In the event that the Lessor does not comply with the above disclosure obligations, then a Lessee may terminate the extended Lease within 6 months.

Exclusions to the Act

The following additional exclusions to the Act will now apply:

  • In a multi-level building, the Act excludes a Lease for non-retail premises but only if the retail area on the particular level is 25% or less of the total lettable area of the level. In a single-level building, the Act excludes a Lease for non-retail premises but only if the retail area of the building is 25% or less of the total lettable area of the building;
  • Any retail shop lease with a floor area of more than 1,000m2. Currently under the Act a lease for such floor area would only be excluded if it was to a Lessee who is a listed company or its subsidiary;
  • A lease for an automatic teller machine or vending machine located in the common areas of a shopping complex. The current Act was somewhat unclear as to whether the exclusions extended to these; and
  • Premises used wholly or predominantly for carrying on a business by the Lessee for a Lessor as the Lessor’s employee or agent.

Monetary Related Matters

The following cost related changes will apply under the amended Act:

Outgoings

  • If the Lessor does not give a Lessee an outgoings estimate or audited statement when required, the Lessee may withhold payment of the outgoings until the Lessor gives the outgoings estimate or audited statement;
  • In an outgoings estimate given by the Lessor to the Lessee, the estimate must include a breakdown of the administrative costs of running the centre and any other fees to be paid to a centre management entity;
  • If the Lessee is required to contribute to the Lessor’s promotion and advertising costs for the centre, then at least 1 month prior to the relevant accounting period the Lessor must provide the Lessee with a marketing plan which details the proposed promotion and advertising expenditure during that accounting period;

Legal and Other Fees

  • A Lessor will no longer be able to pass on to the Lessee the Lessor’s cost incurred in obtaining mortgagee consent;
  • In the event that parties negotiate a Lease but the Lessee pulls out after the final Lease has been prepared, then the Lessor can invoice the Lessee for the Lessor’s costs of preparing the final Lease; and

Turnover

  • Where turnover rent is payable by the Lessee, the previous requirements for the Lessee to give the Lessor certain turnover details under the Act have been removed. This means that it will be open for the parties to agree in the Lease as to the details and frequency of the turnover information to be provided by the Lessee.

Other Changes

Upon an assignment of a Lease, the Lessee and its guarantors will be released from liability from the assignment date, provided that all parties have complied with their respective disclosure obligations. This amendment clarifies the previous uncertainty under the Act as to whether or not guarantors were released from liability in such circumstances.

Where a Lease imposes refurbishment obligations on the Lessee, such Lease provisions will be void unless they specify the general details of the nature, extent and timing of the refurbishment.

Moving Forward

The above changes are set to come into effect in 6 months’ time. Parties to retail leases should use this time to ensure that their leases are compliant and that they have the necessary data and information available to ensure compliance with disclosure obligations and monetary related matters.

Please contact our property lawyers if you would like further information on leasing and your rights and obligations under the amendments.

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