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Are you a retail landlord or tenant? Proposed amendments to the Retail Leases Act 1994 (NSW) may affect you

NewsFlash 25 November 2016

The Retail Leases Amendment (Review) Bill 2016 was introduced into NSW Parliament on 8 November 2016 and when enacted, this legislation may make substantial amendments to many of the provisions of the current legislation, the Retail Leases Act 1994 (NSW) (RLA), governing most retail shop leases in New South Wales.

Some of the changes proposed by the Bill have been outlined below but first we must mention that some of the Bill is intended to have retrospective application:

Retrospective operation of amendments

Clause 38 of the Bill gives retrospective operation to the provisions of the Bill and extends the operation of the Bill to any leases and disclosure statements given, before the commencement of the amendments except as otherwise provided by the Bill.

Major Reform - Repealing the minimum five year term

The Bill removes the current minimum five year term for retail shop leases; the original intent of the introduction of a minimum five year term was to afford greater protection to the goodwill built up by a tenant and to protect the investment a tenant has made in fit out.

The result of getting rid of the five year minimum lease may be that more leases are being structured with shorter terms. Before the RLA, many retail leases were only 3 years but the new norm is now 5 years. The proposal gives greater flexibility to tenants to ask for longer or shorter terms however the potential for shorter terms may result in a greater turnover of tenancies. This may in turn have a detrimental impact on other tenants who are left behind when a key tenant does not elect for a longer term.

However the removal of this provision may save time and costs for both parties. The minimum five year term was not a benefit to tenants who sought a lease for less than five years as they would need to pay legal fees to obtain a s16(3) certificate from a lawyer to do so.

Exclusion of non-retail uses from RLA’s operation

The Bill excludes premises used wholly for certain non-retail purposes from the operation of the RLA. The excluded purposes are outlined in a new Schedule 1A and include the following (among other things):

  • ATMs;
  • Car parking;
  • Vending machines;
  • Public telephones;
  • Children’s ride machines;
  • Signage displays;
  • Internet booths;
  • Private post boxes;
  • Certain storage uses.

The Bill also removes an exclusion from the RLA for any premises in an office tower that forms part of a retail shopping centre. This means that the removal of the provision is not to include office towers; the reasoning is because the original exception was unnecessary as an office tower does not form part of a retail shopping centre simply because it is part of the same building. However the removal of this exception retrospectively may create practical issues where premises that have initially been deemed to be excluded under this provision now may no longer be excluded based on their factual circumstance. By functioning retrospectively the amendments would greatly burden those parties.

Additionally, the Bill asserts that the provisions will not apply to a retail shop that is a stall in a market unless the market is a permanent retail market.

Better Tenant Protection

Other changes proposed by the Bill include:

Disclosure Statements

  • Landlords will be liable to pay compensation to tenants who terminate a lease in the first six months because they were not provided with a disclosure statement, or the disclosure statement was incomplete or false or misleading.
    • The compensation payable is the costs reasonably incurred by the tenant in entering into the lease, including expenditure in connection with the fit-out of the premises.
  • A tenant is not required to pay outgoings unless that liability was disclosed in the landlord’s disclosure statement.

Disclosure of tenant’s financial obligation

  • If the landlord’s disclosure statement provides an estimate for an outgoing and the actual amount of the outgoing is more than the estimate, then if there was no reasonable basis for the estimate when the disclosure statement was provided, the tenant’s liability will be limited to the estimated amount, and all subsequent increases in outgoing will be limited by reference to the estimated amount.

Bank guarantees

  • The landlord is required to return a bank guarantee to the tenant within 2 months after the tenant completes performance of obligations under the lease that are secured by the bank guarantee.
    • This allows the tenant to have certainty about the return of the bank guarantee, but also affords the landlord sufficient time to confirm compliance by a tenant with post-termination obligations.

Online Transactions

  • Turnover rent must exclude revenue accrued from online transactions, except where goods or services are delivered or provided from the retail shop or where the transaction takes place while the customer is at the retail shop.
  • The tenant is not required to provide the lessor with information about online transactions except for transactions where goods or services are delivered or provided from the retail shop or where the transaction takes place while the customer is at the retail shop.

Mortgagee consent expenses

  • The tenant is no longer required to pay lease preparation expenses (including expenses incurred in obtaining mortgage consent to a lease) in connection with the granting, renewal or extension of a lease.

Employment Restrictions

  • The employment restrictions the landlord has over the lease is extended to impose on a tenant requirements for police and security checks for tenant’s employees or contractors carrying out works in the premises. However, this is only if the Registrar of Retail Tenancy Disputes has approved of their inclusion in the particular case.

Amendments that may benefit Landlords

Disclosure statement

  • The revised definition of outgoings extends the definition to fees charged by a landlord for services provided by the landlord ‘in connection with the management, operation, maintenance or repair of the retail shop building or land’.
  • A landlord’s disclosure statement may be amended if both parties agree in writing.

Other general amendments

Demolition

  • The protections afforded to a tenant when the lease is terminated on the grounds of a proposal to demolish the building are extended to termination on the grounds of proposed demolition of any part of the building. Proposed changes also clarify that termination on the proposed demolition is only permissible if the proposed demolition cannot be carried out practicably without vacant possession of the shop.

Assignment of lease

  • There is clarification on the procedure for obtaining the landlord’s consent to the assignment of a retail shop lease, however the provision still includes a deemed consent by the landlord if the landlord has not responded within 28 days from when the request for consent was made by the tenant or from when the tenant has complied with the requirements under the RLA.
  • Where a retail shop lease has been awarded by public tender, the landlord can refuse consent to assignment of the lease if the proposed assignee fails to meet any criteria of the tender.

Jurisdiction of the Tribunal

  • There is an expansion of existing power of the jurisdiction of the Civil and Administrative Tribunal and an increase to the monetary limit for claims arising under the RLA from $400,000 to $750,000.

Lease execution and registration

  • The time period for which the landlord is required to provide the tenant with a signed copy of the lease has increased from 1 month to 3 months.
  • Leases for a term of more than 3 years will be required to be registered, and must be lodged for registration within 3 months after the executed lease is returned to the landlord.

Conclusion

Currently there is no guarantee that this Bill will be passed, and the Bill will likely undergo further discussion and amendments before it is enacted. Parties involved in retail leases as tenants or landlords however should be aware of the potential changes to the Bill as they will be expected to comply with the new requirements when the Bill is passed as the legislation will not only apply to future retail leases but also leases entered into before the enactment of the legislation.


Gary Newton, Partner
Sydney

Henry Yuan, Law Clerk
Sydney

NewsFlash 25 November 2016
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