Changes to the Retail Shop Leases Act: what it means for landlords and tenants

The Retail Shop Leases Amendment Bill 2015 received royal assent on 25 May 2016 and is expected to commence in November 2016.

This will mean important changes to retail leasing practice.

Application of the Retail Shop Leases Act

The legislation will no longer apply to leases of:

• shops with a floor area of more than 1,000m²;
• non-retail areas located in a multi-level building if the ‘retail area’ occupies 25% or less of the lettable space of that level;
• non-retail areas located in a single-level building if the ‘retail area’ occupies 25% or less of the lettable area of the building;
• ATMs, vending machines and advertisement displays in common areas of a shopping centre; or
• areas where a landlord’s agent or employee carries on business (e.g. centre management offices and shopping centre information desks);

Disclosure requirements

Landlords will be required to provide a disclosure statement within 7 days of receiving notice from the tenant exercising an option (unless this requirement is waived by the tenant when the notice is provided). A tenant may then withdraw its notice to exercise within 14 days of receiving the disclosure statement.

If a landlord fails to discharge this obligation, tenants will be able to terminate the lease within 6 months of the option commencement and may be able to claim reasonable compensation.

Tenants will be able to waive the 7 day disclosure period for new leases and lease assignments (even if the tenant is not a ‘major lessee’) by providing the landlord, before entering into the lease, a waiver notice and legal advice report that states the tenant has been given advice about the legal meaning and effect of the waiver. For lease renewals under an option, tenants will be able to completely waive the requirement for a landlord to provide a disclosure statement by providing a waiver notice.

Sub-landlords and franchisors will be able to request an updated disclosure statement from the head landlord, which must be provided within 28 days. Reasonable costs incurred by the head landlord will be payable by the requesting party.

Franchisees will not be required to provide legal and financial advice reports.

Calculation of outgoings and centre management costs

The total lettable area of a shopping centre used to calculate outgoings contributions cannot include areas of premises that, if not licensed or leased, would be part of the building’s common areas for the following purposes:

• information, entertainment, community or leisure facilities;
• ATMs and vending machines;
• advertisement displays;
• telecommunication equipment;
• seating, tables and other furniture; or
• trade out areas, storage and parking.

Insurance excess payments will be prohibited from recovery as a part of centre outgoings.

Greater detail will be required in annual outgoings estimates and audited statements with respect to administration costs, including management fees.

Rent review

Where a lease calls for a market review on the commencement of an option period, tenants will have an ongoing right to exercise their option until the date that is 21 days after the market rent is determined. This right continues even where:

• the last option exercise date under the lease has passed; or
• this date occurs after the lease expiry date.

Tenants with more than five retail premises (major tenants) will be able to opt out of the rent review restrictions under the Act, without now having to provide financial and legal advice certificates.

Lease assignment

There is now a specific provision that releases tenants and their guarantors from liability resulting from the default of the tenant’s assignee, provided that the tenant has complied with its obligations under the Act with respect to lease assignment.

Refurbishment

Refurbishment provisions will need to contain details of the nature, extent and timing of the refurbishment/ refitting obligations in order to be enforceable against a tenant.

Lease costs

Landlords will no longer be able to pass on mortgagee consent fees to tenants.

Landlords will be able to recover their reasonable costs from prospective tenants who provide written notice for a lease to be prepared but then fail to sign the final lease.

Review your obligations and procedures

In anticipation of the changes commencing later this year, landlords, tenants and centre managers should identify how their obligations will be affected and revise their procedures accordingly.

If you have any questions in relation to the new provisions, please contact a member of our property team on 07 3231 2444.