The Retail Shop Leases Amendment Act 2016 received royal assent in May 2015 and is expected to commence in late November 2016.
Significant changes to the Retail Shop Leases Act 1994 include the following:
Exclusions
The Act no longer applies to leases of:
- premises with a floor area over 1,000.00 sqm (previously the tenant must also have been a listed corporation);
- non-retail premises located in a multi-level building if the retail area occupies 25% or less of the lettable area of that level;
- non-retail premises located in a single story building if the retail area occupies 25% or less of the lettable area of that building;
- ATMs, vending machines and advertisement displays in common areas of a shopping centre; and
- premises used for carrying on of a business by a tenant for a landlord as the landlord’s employee or agent.
Disclosure requirements
Landlords are required to provide a disclosure statement within 7 days of receiving notice from a tenant exercising an option. The tenant then has the right to withdraw its option notice within 14 days after receiving the disclosure statement.
In the event that the landlord fails to provide a disclosure statement, the tenant has the right to terminate the lease within 6 months after the option term commencement and may be able to claim reasonable compensation.
The tenant may waive the 7 day disclosure period for new leases and lease assignments by providing the landlord with a waiver and legal advice report.
Outgoings
The calculation of the total area of a shopping centre for the purposes of determining apportionable outgoings cannot take into account the following areas:
- Information, entertainment, community or leisure facilities, telecommunications equipment, automatic teller machines, vending machines, advertisement displays, seating tables and other furniture, storage and parking area.
The landlord must provide greater detail in annual outgoings estimates and audited statements with respect to administration costs, including management fees.
The tenant may withhold payment of outgoings contributions until the required estimate or audited statement is provided.
Costs
The landlord will no longer be able to pass on mortgagee consent fees to the lessee.
The landlord will be able to recover reasonable costs from a prospective tenant who concludes negotiations on agreed terms for a lease but then fails to proceed to sign the final lease.
Market rent review
In a lease that provides for a market review on the commencement of an option period, the tenant now will have an ongoing right to exercise the 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.
Tentants with more than five retail premises (major tenants) will be able to opt out of the rent review restrictions under the Act.
Refurbishment
Refurbishment provisions requiring the lessee to refurbish or refit the premises are void unless they provide adequate details of the nature, extent and timing of the refurbishment/ refitting obligations. More descriptive or technical requirements should be specified, rather than simply stating that the lessee is required to “refurbish” or “redecorate” at intervals.
Release of guarantors on assignment
The assignor’s guarantors will now be released when a lease is assigned to a new tenant, provided the relevant disclosure obligations have been complied with.
Compensation claims
It is now permissible for a lease to limit a tenant’s claim for compensation if a business disturbance occurs during the first year of the lease term, provided that before the lease was entered into the landlord gave the tenant written notice of the potential business disturbance.
The compensation provisions will now apply to a tenant who is holding over under an expired lease with the landlord’s consent.
A landlord will now not be liable to a tenant for compensation for business disruption where the landlord’s actions were in response to an emergency situation.
Any delay by a tenant in providing notice to a landlord claiming loss or damage suffered can be taken into account when deciding the amount of compensation which should be payable to the tenant.
Promotion and marketing levies
Landlords who require tenants to contribute to such funds will now be required to give the tenant an annual marketing plan detailing the landlord’s proposed spending on promotion and advertising. That plan must be provided at least one month before the start of each accounting period.
This article was written by Steven Henderson, Partner and Michael Cameron, Special Counsel.