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Tony, Michael and David Partners at ABKJ
ABKJ Lawyers

Retail Shop Lease Changes

Are you a landlord or a tenant under a Retail Shop Lease? There have been some changes to the law that you need to be aware of.

After a comprehensive process beginning in 2011, the latest amendments to the Retail Shop Leases Act 1994 (“the Act”) have been passed into law. A short summary of the changes is as follows:

Disclosure Obligations

  1. Landlords must now give any tenant who exercises its option a lessor disclosure statement within 7 days of a tenant exercising their option. If the landlord fails to comply with this obligation, the tenant will have the right to terminate their option within the first 6 months of the option period. This is an additional level of administration placed on landlords that did not previously exist under the Act.
  2. A tenant can now elect to waive its right to a 7 day disclosure period prior to entering into a lease (by providing a legal advice certificate and signed waiver). However, it is now a requirement that a tenant provide its disclosure statement to the landlord 7 days prior to entering into possession of the premises.
  3. Any franchisor intending to enter into a new sub-lease or franchise agreement can now request its landlord to provide an updated lessor disclosure statement, the costs of which can be passed on by the landlord to the franchisor.
  4. In the sale of a business that includes a retail lease, a seller must give to any potential buyer an assignor disclosure statement and a copy of the lease at least 7 days prior to the signing of the business sale contract. This disclosure period can be waived by the potential buyer providing a waiver notice.

Financial Considerations

  1. A tenant may now withhold payment of outgoings under a lease until a landlord has provided the annual outgoings estimate, and/or the audited outgoings statement as required.
  2. Any outgoings estimate must include a breakdown of any administration or centre management fees charged as an outgoing.
  3. If a tenant is required to contribute to a centre promotions fund, a landlord must make available its marketing plan detailing the intended expenditure prior to the start of each relevant accounting period.
  4. A landlord is no longer able to recover the cost of any fee for obtaining mortgagee’s consent to a lease from the tenant. They are however entitled to recover legal fees from a proposed tenant in the event that the tenant has requested the preparation of lease documents for signing, but ultimately elects not to proceed with the lease.
  5. The extent and frequency of the provision of turnover information is now a matter of negotiation between the parties, rather than monthly as previously mandated.

Exclusions from the Act

  1. Any retail leases to government tenants are excluded from the disclosure requirements of the Act.
  2. Major lessees (meaning tenants of 5 or more retail premises) can also opt out of the disclosure requirements, as well as the restrictions on the type of rent reviews that can be applied.
  3. The Act also no longer applies to any retail shop with a floor area of greater than 1,000 square metres, or leases for a non-retail use in buildings where the floor on which the premises is located uses 25% or less of its total lettable area for a retail use.

Other Amendments

  1. It has now been clarified that a personal guarantor of a retail lease is released from any liability to the landlord under the guarantee following an assignment of the lease to a new tenant, provided that the disclosure obligations relating to the assignment have been complied with.
  2. Refurbishment provisions in leases must now give the general details of the nature, extent and timing of the refurbishment required, otherwise they may not be able to be enforced.
  3. A landlord can also now limit its compensation liability for a planned disturbance that occurs within the first 12 months of a retail lease, provided sufficient details of the planned disturbance are contained in a detailed written notice issued to the tenant prior to the entry into the lease. This will be of use to any landlords entering into any leases prior to or during a planned refurbishment or redevelopment.

As stated, this is just a short summary of the changes now in effect. Please do not hesitate to contact our office and talk to a commercial lawyer should you require any further information.