Retail Leases Act (NSW) 2017- Implications for Landlords and Retail Tenants

The new retail leases act comes into effect in July 2017.

There is good news for both Landlord and Tenant. The changes are incremental, attempting to clarify, rather than making revolutionary changes, but there are some important implications to consider.  (These changes do not apply to the termination of a lease that occurs before that commencement of these changes).

Examples of simple clarifications are:

  • Landlord’s mortgagee consent fees are not recoverable from tenants.
  • Definition of Outgoings has been expanded to include fees charged for the management, operation, maintenance or repair of the retail shop building or land.
  • “Retail shop building or land” is defined to mean the building in which the retail shop is located or any building in a retail shopping centre, and includes any areas used in association with any such building. (This may be important to some landlords where certain parts of the building may have been previously excluded from being included in outgoings recoveries, potentially could be included in the future.)
  • This Act does not apply to a retail shop that is a stall in a market unless the market is a ‘permanent retail market’. Think of Paddy’s Markets etc. as being a ‘permanent retail market predominantly used for retail businesses and that operate in a building or other permanent structure the sole or dominant use of which (or of the part in which the market operates) is the operation of the market.” That is; a stall in a permanent retail market is not a retail shop to which this Act applies unless it satisfies the definition of retail shop in section 3.The Act will apply to agreements for lease in the same way that it applies to a lease.
  • It clarifies that certain shops excluded from the Act and Schedule 1A – specifically excluded from the operation of the Act such as ATMs, Kiddy  Rides, Communication towers, Signage and more.
  • NCAT’s jurisdiction to hear a retail tenancy claims or an unconscionable conduct claim is increased to $750 000 (from $400,000).

A few of the more far-reaching changes that may trip up careless administrators, are as follows:

OUTGOINGS

If the actual amount of an outgoing which was estimated in a lessor’s disclosure statement is more than the amount which was estimated, unless there was a reasonable basis for the estimate when it was given, the lessee’s liability to pay that outgoing is to be on the basis of the amount estimated (instead of the actual).

If the lessee’s liability to pay the actual amount is reduced because there was no reasonable basis for an estimate of the outgoing, any liability of the lessee in respect of any subsequent increase in the outgoing is to be reduced in the same proportion as the actual amount was reduced.

Example: the lessor’s estimate for repairs and maintenance is 20% less than the actual amount and there was no reasonable basis for determining the outgoing, the lessee is only required to pay based on the estimate and its ongoing contribution to that outgoing will be reduced by the same proportion.

Note: there are no guidelines to determine what a “reasonable basis” is.

The lessor is required to indicate whether or not a lessee’s contribution to outgoings is to be a fixed amount or a floating amount.

This amendment is not retrospective.

LEASE TERMS

The 3 month period is to be extended for any delay attributable to the need to obtain consent from a head lessor or mortgagee.

Minimum 5 year term requirement has been abolished. (The sections of the Act which apply to the minimum 5 year term requirement continue to apply to a retail lease in force before the commencement of the amending Act.

If a retail lease is for a term of more than 3 years or the parties have agreed that it should be registered, the lessor must lodge the lease for registration within 3 months after the lease is returned to the lessor or the lessor’s solicitor.

ONLINE SALES

Revenue from online transactions are to be excluded from turnover, except where:

  • the goods or services concerned are delivered or provided from or at the retail shop; or
  • the transaction takes place while the customer is at the retail shop.

DEMOLITION/RELOCATION

Demolition no longer has to be of the whole building of which the premises forms part. The amendments also clarify that the lease cannot be terminated unless the proposed demolition cannot be carried out practicably without vacant possession of the premises.

The definition of “demolition” has also been amended to include repair, renovation and reconstruction and will no longer be qualified as having to be “substantial”.

 

 

 

In a previous article, we addressed some of the minor and more major changes in the Retail Leases Act. In this final part, we look specifically at some to the changes that may impact on the Assignment of Lease and general lease administration processes.

BANK GUARANTEES

A lessor must return a bank guarantee to the lessee within 2 months after the lessee completes performance of its obligations under the lease, and lessor is liable to pay the lessee compensation for any loss or damage suffered by the lessee as a result of the failure by the lessor to return a bank guarantee.

SECURITY CHECKS

A lease can contain a provision specifying requirements in the nature of police and security checks and clearances for persons employed in the shop or other persons (such as contractors) doing work in the shop, but only with the approval in writing of the Registrar given in a particular case.

The Act is silent on checking and verification of identity  and creditworthiness, and the due diligence process during the assignment is not impacted.

I should be noted that where Security Contractors are renting office space from which to operate, their employer may (and will) continue to perform appropriate checks to ensure suitability of employment, and this is not impacted by the changes in the act which govern the Landlord behaviour.

DISCLOSURE STATEMENTS

When the lease is entered into the lessor’s disclosure statement given for the agreement for lease is deemed to also have been given for the lease. A separate disclosure statement is not required to be given for the lease.

If the lessee terminates the lease because it did not receive the disclosure statement or the disclosure statement contained information which was materially false or misleading then the lessee is entitled to recover compensation from the lessor for costs reasonably incurred by the lessee in connection with entering into the lease, including fit out costs.

A lessor’s disclosure statement can be amended with the agreement in writing of the lessor and the lessee before or after the lease is entered into.

LEASE ADMIN & ASSIGNMENTS

The lessor must provide a lessee with an executed copy of the lease within 3 months after the lease is returned to the lessor or lessor’s lawyer.

Grounds on which an assignment of lease can be withheld has been added which provides that in the case of a retail shop lease which has been awarded by public tender, an assignee fails to meet the criteria of the tender.

Procedure for obtaining consent to assignment has also been clarified. An assignor is still required to provide an assignee with an updated lessor’s disclosure statement however, if the lessor fails to provide the updated disclosure statement to the assignor within 14 days of being requested to do so, it is sufficient compliance if the assignor provides the assignee with an updated lessor’s disclosure statement which has been completed by the assignor, to the best of its knowledge.

The assignor must provide the lessor with a copy of the assignor’s disclosure statement, together with a document which is signed by both the assignor and the assignee called the Disclosure Confirmation.

In short, if the Landlord is not organised and efficient in this regard, the Tenant can take a best guess and those terms (disclosed between assignor and assignee) will become binding on the landlord.

DISCLAIMER: This article was written to provide a high-level overview and does not constitute legal advice, and we recommend that you obtain a professional opinion to address your specific circumstances.

Dennis Price, Founder at www.yearone.solutions

 

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