What is not a retail shop lease and when is it entered into?

  • A retail shop lease with a floor area of greater than 1,000 square metres is not a retail shop lease regardless of whether the tenant is an individual, unlisted corporation or listed corporation.  Previously, the exclusion applied only where the tenant was a listed corporation or a listed corporation’s subsidiary.  This amendment will see a number of large retail premises now excluded from the Act even if the business conducted from the premises is a retail business.
  • A retail shop lease with a floor area of greater than 1,000 square metres is not a retail shop lease regardless of whether the tenant is an individual, unlisted corporation or listed corporation.  Previously, the exclusion applied only where the tenant was a listed corporation or a listed corporation’s subsidiary.  This amendment will see a number of large retail premises now excluded from the Act even if the business conducted from the premises is a retail business.
  • The time at which a retail lease is entered into is crucial in determining the relevant disclosure periods.  The Act now clarifies that a retail lease is entered into on the earliest of:
    • the lease being signed by all parties;
    • the tenant entering into possession of the premises; and
    • the lessee first paying rent under the lease other than a deposit.

Tenants should exercise caution when making paying rent ahead of an intended commencement date as the date of payment may then be taken as the date the lease was entered into, even if the lease is not signed.

Disclosure requirements

  • The requirement to provide a lessor disclosure statement (“LDS”) at least 7 days before a lease or lease assignment is entered into remains.  However, a tenant can now waive the 7 day period by providing the landlord with a waiver notice and a legal advice report which confirms the tenant has received advice on the effect of the waiver.  The ability to waive the requirement will be beneficial when assignment documents are issued with less than 7 days before the anticipated date of assignment.
  • A LDS must now be provided within 7 days of a tenant exercising an option to renew a lease.  This may cause issues for landlords particularly as they will not know when an option will be exercised.  Again, the tenant can waive that requirement by giving notice and there may be scope to make a waiver notice a requirement of exercising the option. Importantly, within 14 days of receipt of the LDS, a tenant has a right to withdraw the renewal notice in which case, the option will not have been exercised.
  • A tenant can terminate a lease within 6 months of its commencement if a LDS is not provided prior to the commencement of the lease or the LDS provided is defective. That right now applies in circumstances where the term of the lease is extended when a tenant exercises an option to renew.

Assignment of lease

  • Provided there is strict compliance with the disclosure requirements of the assignor and assignee, both the assignor and any guarantor will now be released from the date of assignment from any liability arising from the assignee’s default after the date of assignment.  This is a significant amendment for individuals who have provided personal guarantees for a lease which is then assigned.  Until now, the guarantors have remained liable unless released by the landlord on assignment.
  • If an assignment is due to the sale of the assignor’s business, the assignor must give the assignee a disclosure statement and a copy of the lease at least 7 days before the earlier of the date the agreement for sale is entered into and the date the landlord is asked to consent to the assignment.  This may lead to delays with preparing contracts and having them signed.  However, the 7 day time period may be reduced within that 7 days if the assignee gives the assignor a waiver notice before the sale agreement is entered into or the landlord is asked to provide its consent.

Costs

  • A tenant is no longer liable for the costs associated with obtaining consent of the landlord’s mortgagee to a lease.
  • A tenant may be required to pay a landlord’s costs where the parties have agreed to the terms of a proposed lease, the tenant has given written notice to the landlord to prepare the lease, the lease is prepared and the tenant does not sign the lease.

Outgoings

  • All outgoings statements must now be itemised and provided by the landlord to the tenant within 3 months of the end of the statement period.  This will ensure greater transparency for tenants.
  • At least 1 month before a new outgoings period commences or when a lease commences (if the commencement date is inside the outgoings period), landlords must provide the tenant with an annual estimate of outgoings and notification of the proportion of outgoings for which a tenant will be liable.  Again, this ensures greater transparency.
  • If a landlord fails to give a tenant an estimate of outgoings or an audited statement as required, the tenant may withhold payments for outgoings until the landlord provides the estimate or statement.  Prior to the commencement of the amended legislation, tenants were often waiting extended periods to receive outgoings estimates or statements. However, the risk of having payments withheld will now likely encourage landlords to prepare outgoings estimates and statements in a timely manner.
  • If the outgoings payable by a tenant are for payments for promotion and advertising, the landlord must make available to the tenant a marketing plan that outlines the proposed spending during the relevant accounting period.  An audited statement must then be provided within 3 months of the end of the relevant period.

Compensation

  • A tenant must give the landlord notice of damage to the leased premises as soon as practicable.  If notice is not given in a timely manner, the late notification may adversely impact on the decision regarding the amount of compensation the tenant is entitled to receive.
  • An agreement about the amount of compensation payable to a tenant will not be enforceable to the extent that it limits the compensation which may be paid.  However, it is possible to limit compensation for an anticipated disturbance which occurs within 1 year of the lease being entered into provided that before the lease is entered into, the landlord notifies the tenant of the anticipated disturbance in accordance with the Act.  A general notice that a disturbance may occur will not be sufficient.

Other matters

  • Rent reviews – A major tenant (who leases 5 or more retail premises) can now agree for the rent for a retail premises to be the higher of two or more amounts.  Previously, such clauses have been prohibited irrespective of whether the tenant was a major tenant.
  • Trading hours – A term of a retail lease which attempts to impose an obligation on a tenant to trade outside of core trading hours for a retail shopping centre is not enforceable.  However, a clause which allows a tenant to trade outside core trading hours but does require such trade to occur is permitted.
  • Refurbishment – A term of a retail lease which requires a tenant to refurbish or refit its premises is void unless the lease provides general details of the nature, extent and timing of the refurbishment or refitting required.

Should you require any assistance or have any queries regarding the amendments to the legislation or the requirements of the Act more generally, please contact us.