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.

Assign­ments

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.

Next Steps

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 horiti@dohlaw.com.au

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