The Retail Leases Act 2003 started on 1 May 2003 changing retail-leasing laws, and this outlines some of the changes. These laws apply to all Leases or renewals of retail premises entered into, on, or after 1 May 2003 and apply to Leases for less than a year. If a Tenant occupies the premises for more than a year, the Retail Leases Act applies from the end of the twelfth month.
The Retail Leases Act changes the legal definition of retail premises as it:
Removes the floor area cap to decide if the legislation applies
Sets a jurisdiction cap equal to the occupancy costs set by regulation, which is the total of annual rent (excluding turnover rent), “prescribed” outgoings, and costs. The cap is $1 million per year
Removes the previous corporate exception, replacing it by corporations listed locally, overseas, and subsidiaries
Excludes office premises in commercial office buildings
MINIMUM TERM OF LEASE
The minimum term for Tenants is 5 years (allowing for any options) and applies only to new Leases (not to Lease renewals if there is no break in possession). A shorter term is available if the Small Business Commissioner certifies and provides the Tenant an explanation and the Tenant waives this requirement.
Unlike the old statutory option for first-time Tenants obliging Tenants to give notice for an extension to 5 years, the extension for any shortfall in the 5-year term is automatic. The extension operates for the initial term only, not altering any renewal option. For example, a Lease for 2 years with a further 2-year term changes the initial term to 3 years to provide the minimum 5-year term (in view of the 2 year option).
ASSIGNMENT OR SUB-LETTING THE LEASE
The new laws have eroded the Tenant’s rights in this area. Previously, the Landlord had to act reasonably in withholding consent to an assignment or sub-letting. Now there is no requirement to act reasonably, and the circumstances where a Landlord can withhold consent are:
Proposed use is inconsistent with the permitted use;
The Landlord believes the assignee has insufficient financial resources or business experience to perform its Lease obligations;
Failure to comply with reasonable assignment provisions in the Lease, and
The assignor has not given the assignee business records for 3 years (or a lesser period the Tenant operated the business)
The assignor must give a disclosure statement for an assignment of an ongoing business and on assignment, the assignor, and its guarantors have no further liability. Leases can have provisions giving the Landlord absolute discretion about sub-letting, licensing, granting concessions, parting with occupation and mortgaging or charging the premises.
The Landlord must give copies of written Lease, disclosure statement and information brochure at the time of entering negotiations. The Lease need not contain the Tenant’s details, rent, or the term. The Tenant must give not less than 7 and no more than 90 days after entering the Lease, notice that a Landlord did not provide a disclosure statement, before withholding or terminating for non-disclosure; but a Landlord can challenge a termination for non-disclosure.
Disclosure on renewal must occur at least 21 days before the term ends in the case of a renewal option, and within 14 days after agreement to renew if there is no option. Disclosure on renewal applies to renewals on, or after the commencement date of old Leases. A Lease requiring a Tenant to pay fit-out contributions not set out in a disclosure statement is void. An assignor must give the assignee a disclosure statement with details of changes. The Tenant can request the Landlord to provide a disclosure statement current to within 3 months; failure to comply attracts penalties.
This is a payment for which the Tenant receives no or inadequate consideration and legitimises some payments for extra years, common in the liquor industry, but the payment must be even to the benefit the Tenant receives.
The Landlord must bank the security deposit in an interest bearing account for the Tenant that accrues interest and give details of accrued interest to the Tenant.
NOTIFYING THE SMALL BUSINESS COMMISSIONER
The Landlord must give written notification to the Small Business Commissioner about specified Lease details 14 days after the parties sign the Lease and penalties apply for failing to do so.
The Tenant must give notice for exercise
of an option no more than 12 months and not less than 6 months before the last date for exercise
. If the Tenant does not give notice, the Lease continues and the option is exercisable 6 months after notice is given. A Landlord does not need to give notice of the last date for exercise of an option if the Tenant has exercised, or purports to exercise the option before receiving the notice. If the term continues due to Landlord’s late notice and there is an exercise of an option, the term starts on the date contemplated by the Lease without reference to the statutory extension.
A Tenant does not need to contribute to a fit-out unless the disclosure statement sets out the contribution. Certain conditions apply where a Tenant must pay, or contribute to the cost of alterations related to the fit-out, which set a limit on recovery. Until a Landlord’s fit-out is complete, rent and outgoings are not payable, but the Landlord can charge a special rent for fit-out costs.
Rent review options remain the same and apply to the determination of the commencing rent for a renewal on or after the commencement date of an old Lease. The Tenant can start a market review within 90 days after the due date,
if the Landlord does not start the review.
SPECIALIST RETAIL VALUER
Landlords must provide relevant information within 14 days of request
to a specialist retail Valuer.
Outgoings must now benefit premises for shopping centre premises and there is a prohibition of recovery of capital costs, depreciation, and contributions to sinking funds, interest on borrowings, head Lease rents, and land tax, with limitations on the recovery of management fees and different reporting requirements about actual outgoings.
A Landlord has a specific obligation to repair and urgent repairs are no longer set at $5,000.00.
INTERFERENCES WITH TENANCY
A Landlord must give 60 days’ notice for any refurbishment works, which might adversely affect the premises. There is an expansion of the relocation provisions and with clauses providing for termination accompanied by the offer of new premises and the question of rent for the alternative premises.
There is a two level compensation scheme where a Tenant must vacate premises intended for demolition, which depends on whether or not the Landlord carries out the demolition. There is
abatement and termination regime for damaged premises. Refurbishment and re-fitting terms are void unless they give details of the nature,
extent and timing of the work the Tenant must carry out.
Changes to core centre trading hours need the majority consent of the centre Tenants. If a Tenant contributes to the cost of getting statistical information, the Lease must provide that the Landlord make the information available on request. A Tenant cannot be required to undertake marketing or promotion, but can be required to contribute to the Landlord’s cost of doing so. The Landlord must comply with certain requirements for a marketing plan, estimates of proposed expenditure and statements of actual expenditure. A provision allowing termination by a Landlord for failure to achieve a particular level of turnover is void. Geographical restraints on Tenants are void.
RETAIL TENANCY DISPUTES
One cannot issue in VCAT unless the Small Business Commissioner certifies mediation (or ADR) failed or is unlikely to resolve the dispute. VCAT has the same jurisdiction as the Supreme Court to provide relief from forfeiture. Parties must pay their own costs in VCAT, except if the proceeding is vexatious, frivolous, etc.
NEED MORE INFORMATION
Behan Legal assists and advises on these important issues. For an appointment, call 03 9646 0344