If you are a tenant or a landlord of a retail shop in NSW you need to be aware of the changes arising out of the commencement of the Retail Shop Leases Amendment (Review) Act 2017 (NSW) (Act).
Removal of the minimum 5 year lease term
A tenant may now enter a lease with a term less than 5 years, without having to obtain a certificate from a solicitor waiving the previous 5 year minimum term requirement.
Disclosure – outgoings and expenses
Since the amendments to the Act the tenant will only be liable for the type and amount of outgoings disclosed in the landlord’s disclosure statement, notwithstanding the terns of the lease.
The landlord must therefore take care to:
- include the estimated cost of each outgoing in the disclosure statement, as the tenant’s liability will be limited to that estimated amount; and
- estimate the future increases to the outgoings and include the increase in the total estimation of the outgoing.
The landlord should also be aware that the definition of outgoings has been amended as follows:
- includes the fees for services charged by the landlord which would otherwise have been considered outgoings under the previous definition and charged to the landlord by a third party.
- includes legal fees charged in connection with managing, operating, maintaining and repairing the premises.
- advertising and promotional costs are excluded so the landlord is not constrained by the estimated amount in the disclosure statement.
Disclosure – compensation
The landlord must still provide a tenant with a disclosure statement 7 days before a lease starts or is signed. If the Landlord does not do this, the tenant may terminate the lease within the first 6 months of the lease term.
Since the changes to the Act, if the tenant terminates because the landlord fails to comply with their disclosure requirements, the tenant will be entitled to compensation for reasonable costs incurred in entering the lease including costs in relation to the fit-out of the premises.
Executed copy of lease
The landlord must give a fully signed copy of the lease to the tenant within 3 months after the tenant returns the lease to the landlord.
The Act now prevents the landlord from recovering the costs of obtaining the mortgagee’s consent from the tenant. The landlord is still prevented from recovering its costs of granting, renewing or extending the lease from the tenant.
The landlord must lodge the lease for registration within 3 months of it being returned to the landlord for execution by the tenant where:
- the lease has a term of more than 3 years (including option terms); or
- where the parties agree that the lease must be registered.
The landlord must return a bank guarantee to the tenant within 2 months of the tenant completing their obligations for security prescribed under the lease, usually on the lease ending or being assigned to a new tenant. The landlord may be liable to compensate the tenant where the landlord does not return the bank guarantee in that time frame.
Assignment of lease
A tenant assigning a lease, for instance when the tenant sells their business, is required to provide the new tenant with a new disclosure statement from the landlord. The landlord must provide the new disclosure statement to the tenant within 14 days. Failure by the landlord to provide the new disclosure statement will require the tenant to provide it.