Are you ready for the changes to the Retail Shop Lease Act?
With the amendments to the Retail Shop Leases Act in effect as of 25 November 2016 you should consider how the amendments will affect your lease.
Does the Act apply to my lease?
The use of the premises by a tenant determines whether the Act applies to a lease. The Act applies to a large range of retail and service businesses including hair dressers, clothes sales, pharmacies, newsagencies, grocery and convenience stores, cafes and restaurants. Your lease will now be excluded if your shop or floor area is more than 1000 m2.
What are the changes I should expect as a landlord or tenant?
1. If you are a landlord:
(a) You will be required to provide a disclosure statement, setting out lease details such as term, rent and outgoings, within 7 days of receiving notice from the tenant that they intend to exercise an option.
(b) A tenant may withdraw its notice exercising the option within 14 days of receiving the disclosure if, for example, it was not satisfied with the new rent.
2. If you are a tenant:
(a) If the landlord fails to provide a disclosure statement within 7 days of receiving notice of your exercise of option, you may terminate the lease within 6 months of the option commencement and claim reasonable compensation from the landlord.
(b) You may waive the 7 day disclosure period before entering into a new lease or lease assignment by giving a waiver notice and legal advice report to the landlord.
(c) For lease renewals under an option, you will be able to completely waive the requirement for a landlord to provide a disclosure statement by providing a waiver notice.
Outgoings and centre management costs
3. If you are a landlord:
(a) You must provide tenants with a breakdown of the total management fees and administration costs of a building containing 5 or more retail shop leases (centre).
4. If you are a tenant:
(a) The landlord cannot require you to pay the landlord’s insurance excess.
(b) You may withhold payment of outgoings until the landlord gives you an outgoing estimate or audited statement.
(c) If you are required to contribute to the landlord’s promotion and advertising costs, the landlord must provide you with a marketing plan detailing that proposed expenditure at least 1 month prior to the relevant accounting period.
5. If you are a tenant:
(a) Where you may exercise your right under the Act to have an early determination of the market rent before exercising an option to renew, the time frame for you to exercise the option will close 21 days after the market rent is agreed or determined, even if that date extends beyond the expiry date of the retail shop lease.
Assignment of a lease
6. If you are a tenant:
(a) You and your guarantors can no longer be held liable for the default of anyone to whom you have assigned the lease, provided you have complied with your obligations under the Act with respect to the lease assignment.
7. If you are a landlord:
(a) Refurbishment provisions in the lease will need to contain details of the nature, extent and timing of the refurbishment or refitting obligations in order to be enforceable against the tenant.
8. If you are a landlord:
(a) You will no longer be able to pass on mortgagee consent fees to the tenant.
(b) You will be able to recover reasonable costs from prospective tenants who provide written notice for a lease to be prepared but then fail to sign the lease.
What action should a landlord take now?
9. Make sure you are aware of your additional disclosure and compliance requirements.
10. Disclose your outgoing estimates to your tenant or provide audited statements to your tenant to avoid the tenant withholding payment.
11. Check which leases include a market review of rent on the exercise of an option to renew the lease. If the option is due to be exercised after 25 November 2016 then the landlord will need to be ready to determine the new market rent.
12. Check any refurbishment clauses in your lease.
13. Check your lease still falls under the Retail Shop Leases Act. From 25 November 2016 all leases over 1,000sqm will not be subject to the Retail Shop Leases Act.
If you require any further advice on how the changes will impact your lease, please contact us.