Retail Leases Amendment Bill

26 November 2019

Introduction

The Retail Leases Amendment Bill (the Bill) was tabled in the Victorian Legislative Assembly on 30 October 2019.

It seeks to enact a number of changes to retail leasing laws following the Small Business Regulation Review, which concluded in June 2018.

Proposed objectives of the Bill

Broadly speaking the Bill proposes to make the following changes:

  • Landlords will be allowed to pass on costs of carrying out essential safety works;
  • Landlords will be required provide a Disclosure Statement for prospective tenants earlier than under the current legislation, and must update the Disclosure Statement on renewal of the lease;
  • Landlords must give tenants more information before an option to renew;
  • Tenants will be permitted to seek a market rent review prior to the exercise of an option to renew;
  • Tenants will have 14 day cooling-off periods after exercising an option to renew; and
  • Landlords must return security deposits within 30 days.

Passing on costs for essential safety measures

It had been commercial practice for some time for landlords to pass on the costs of repairs and maintenance of essential services within a building to retail tenants as outgoings.

While this was generally commercial practice the legality of this was put into doubt, because of the advisory opinion of President Garde of VCAT given in 2015. President Garde’s opinion was that s.251 of the Building Act 1993 (Vic) had the effect of prohibiting landlords from seeking to recover maintenance costs for essential services, and was not able to be contracted out of.

President Garde’s advisory opinion was not legally binding. However, it does have considerable support based on two VCAT decisions in which VCAT made the same determination.

In light of the uncertainty surrounding this issue, the Bill proposes to amend the Building Act 1993 (Vic) to include a new subsection (2A), which states that an occupier cannot set off from the rent any amount expended on essential safety measures if they have agreed to bear those expenses under a lease.

In addition, the Bill adds an exemption to the usual prohibition on the recovery of capital costs for works done under the Retail Leases Act 2003 (the Act) to allow landlords to recover costs of essential safety measures if permitted to do so in the lease.

The Explanatory Memorandum makes it clear that any agreement in a lease does not change the landlord’s responsibility to comply with the Building Act and regulations in respect of essential safety measures. In essence, the Bill (if passed) will allow landlords of retail premises to recover its maintenance costs for essential safety measures provided to a retail tenancy if the lease permits it to do so.

Landlord’s Disclosure Statement

Under the current legislation the landlord must give a Disclosure Statement to prospective tenants 7 days before the entry into a lease. The Bill requires that Disclosure Statements be given to a retail tenant 14 days before they enter into a lease and mandates that the Disclosure Statement include a copy of the proposed lease. The purpose of this changes is to allow retail tenants more time to negotiate a lease with the landlord.

In the case of renewing tenants, the Bill requires landlords to set out any changes between the current Disclosure Statement and the most recent statement given to that tenant.

Security deposits

The proposed bill amends s 24(1) (d) of the Act to clarify that a tenant’s security deposit must be returned within 30 days after the end of the lease. Under the current legislation the landlord was required to return the deposit ‘as soon as practicable’.

Options to renew

The bill proposes to change the timeframe that a landlord is required to notify a tenant about the last date for the tenant to renew its lease. The Bill requires a landlord to notify the retail tenant of the last date by which an option may be exercised at least three months before that date (which is down from six months under the current legislation). In addition, landlords will be advised to inform tenants of:

  • The rent they will be required to pay for the first 12 months of the lease;
  • The availability of an early market rent review;
  • The availability of a cooling off period; and
  • Any changes to the most recent Disclosure Statement they have given the tenant.

Early market review

The bill introduces new sections 28A which allows early market rent reviews. Where the lease provides for a market rent review and a landlord has served the notice of review the Tenant may request an early rent review.

If the Tenant requests a review, the last date before which the Tenant can exercise an option to renew is postponed until the Tenant is aware of the market rent determinate.

This change is designed to ensure that Tenants are aware of the rent they will be paying prior to exercising an option to renew.

Cooling off period

The Bill introduces new section 28B, which provides that if a tenant has not requested an early market rent review and has exercised an option to renew, they will be entitled to a cooling-off period of 14 days, during which they can elect not to continue with the option to renew.

Application

The requirement to return security deposits within 30 days will apply to leases entered into before the passing of the Act.

The updated requirements to give disclosure statements will also apply to existing leases unless there are fewer than 21 days between the Bill entering into force and the end of the tenancy.

The requirement for a landlord to give more information before an option to renew a lease is exercised will apply to existing leases unless there are fewer than three months between the Bill entering into force and the last date to exercise an option to renew.

All other parts of the Bill, such as those which allow landlords to recover for the costs of essential services will come into force on the day the Act receives Royal Assent. This means that landlords will not be able to retrospectively recover for costs of essential works that they had already carried out.

Status of the Bill

The Bill is currently before the Victorian Legislative Assembly (Lower House). A Second Reading speech has been given, but the Bill has not yet been debated. There may be amendments to the version of the Bill that will ultimately be passed.

We will provide further updates as the Bill progresses in due course.

This article was written by David Marriott, Partner, Nicole Maxwell, Partner, Michael Westaway, Partner and Duncan Willis, Law Graduate.

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