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:
- 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.
- 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.
- 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.
- 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.
- 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.
- Any outgoings estimate must include a breakdown of any administration or centre management fees charged as an outgoing.
- 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.
- 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.
- 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
- Any retail leases to government tenants are excluded from the disclosure requirements of the Act.
- 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.
- 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.
- 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.
- 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.
- 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.