The Retail Leases Act 1994 was designed to protect tenants of retail shops from the unconscionable exercise of landlords’ powers.
Landlords and tenants adapted to the changes introduced in the initial Act over 20 years ago. There has been a lengthy period of stability but following a review by the NSW Government further significant changes became effective on 1 July 2017. They have consequences for both landlords and tenants, so we believe it’s beneficial for both parties to make sure they are familiar with the changes.
Disclosure of Outgoings
A disclosure of outgoings must clearly and correctly specify all outgoings that a tenant will need to pay. Non-disclosure or an under-estimate of these outgoings has consequences for the landlord. If a landlord has not provided a reasonable estimate of outgoings, the tenant may not be liable to pay more than what was set out in the disclosure statement.
Landlords may review or amend the disclosure statement that has been given and they may do so in writing before or after the retail lease is entered into. However, such amendment must be agreed by the lessee before it has effect.
If the disclosure statement was not given or was incomplete or contained information or material that was false, the tenant may have rights to terminate the lease at any time within six months after it was entered into.
However, they cannot do this if the landlord is able to prove they acted honestly and reasonably or should reasonably be excused for the failure and the lessee is in substantially as good a position as the lessee would have been if the failure had not occurred.
No Minimum Term
Previously retail leases required a minimum of a five year term unless a certificate was provided by a solicitor. That five year term is no longer required.
Other Time Frames
Procedurally, landlords must comply with obligations to ensure timely registration and return of signed leases. The landlord must register the lease within three months after the executed lease is provided to the landlord by the tenant unless there is a delay caused by obtaining the head lessor or mortgagee’s consent which is outside the landlords reasonable control. A failure to comply with the time frame is an offence with a maximum penalty of $5,500.00.
Additionally, any bank guarantee must be returned to the tenant within two months after the tenant completes its obligations under the lease. The landlord risks a penalty of $5,500.00 plus a claim for compensation if they fail to comply with the time frame.
Recovery of Landlords Costs
There has always been a limit on the costs that may be recovered by a landlord in relation to the preparation and registration of a lease. Those costs were generally limited to registration fees only.
Since the legislation updates have come into effect, a landlord can no longer recover mortgagee’s consent expenses from a tenant.
Tenants looking to sell their business, which may involve an assignment of lease, must now prepare their own disclosure statement, rather than require the landlord to provide one. The tenant will need to provide an updated lessor’s disclosure statement to the assignee at least seven days before the assignment.
Online Transactions and Calculation of Turnover Rent
Rent that is calculated on a retail stores turnover is commonly included within leases in large shopping centres. Landlords may not include online transactions as part of the calculation of turnover rent unless they are able to establish such sales have a sufficient connection with the retail shop.
Increasingly, costs pressures on both landlords and tenants have meant that parties forgo the opportunity to obtain competent legal advice. The Retail Leases Act has always been a complex area of the law, it is clear there can be many costly traps and pitfalls for the unwary landlord or tenant. To avoid these, we recommend investing in legal advice that you can trust.
Hadyn Oriti is a Partner with Donovan Oates Hannaford. He has a wealth of experience in providing advice on Retail Leases. If you would like to discuss any issues you may have with respect to the Retail Leases Act 1994 or simply wish to find out how these changes may affect your business, please contact Hadyn on 02 6583 0449 or firstname.lastname@example.org