The Retail Leases Act 1994 (NSW) (the Act) was changed on 1 July 2017. This affects businesses with a NSW retail lease and introduces new obligations for both landlords and tenants.
This article describes how the changes will affect retail tenants and landlords, including:
It covers the law and explains each party can adapt to the changes. The new laws will not apply retroactively, however, for tenants who signed a NSW retail lease prior to 1 July 2017, they will only apply once the tenant renews the lease.
Definition of Retail Premises
The Act now clarifies that a NSW retail lease only applies to retail premises. Generally, a retail premises is a shop that predominantly exists for a retail purpose. It will include most small shops in a shopping centre. However, the definition of ‘retail premises’ can be technical. Therefore, both landlords and tenants should review the Act to determine whether it applies to their particular lease.
Prior to the 2017 amendments, the Act assumed that a NSW retail lease would be for a term of five years or more. If a party wanted to enter into a term less than five years, they had to supply a certificate stating that they received legal advice. The Act now removes this requirement. Therefore, landlords will no longer need to include in the lease that the tenant needs to get a legal certificate. However, tenants should still consider the commercial realities of entering a short-term lease. Without the certainty provided by a long-term lease, tenants may find it harder to become established.
The Act requires the disclosure of outgoings by the landlord before the tenant signs the lease. The landlord cannot later recover costs from the tenant if they did not properly disclose prior to the tenant entering the lease. Therefore, landlords must ensure that they insert all possible costs and estimates into the disclosure statement.
Tenants can rely on the landlord’s disclosure statement as an accurate prediction of their future financial obligations. The tenant should keep a copy of the disclosure statement that they can refer to in the future if there are any disputes.
NSW Civil and Administrative Tribunal (NCAT)
NCAT is now able to deal with matters up to the amount of $750,000. This is an increase from the former limit of $400,000. Furthermore, NCAT can now rectify a lease and make compensation orders.
Both landlords and tenants should keep NCAT in mind as a cost-effective way to resolve disputes before going to court.
The landlord must now return the tenant’s bank guarantee within two months of the tenant completing all their obligations in the lease. Therefore, the landlord should monitor how the tenant is meeting their obligations to ensure they comply with the time limit.
The tenant should ensure that the lease includes a provision that the landlord agrees to return the bank guarantee within the two-month time limit.
Valuation of Retail Premises
Valuers get involved if the rent is to be reviewed according to the market rent. The NSW Small Business Commissioner will now appoint specialist retail valuers. Therefore, if they have not yet mutally agreed on a valuer, either the landlord or the tenant can contact the Commissioner to appoint one.
Assignment from Tender
Assignment refers to the transfer of the lease, usually initiated by the tenant. The landlord can now decline the assignment if:
- the lease is to be granted through a public tender; and
- the proposed assignee does not meet the criteria of the original tender.
In other words, if the original tenant won the lease by public tender, and now wants to assign the lease to another, but the proposed assignee does not meet the original criteria.
Therefore, landlords should ensure that the tender criteria are clear so that they have a basis for assessing proposed assignees. Tenants should be aware of the tender criteria before proposing an assignee.
Use of Turnover Data
Landlords often collect turnover data (records of sales) in order to calculate turnover rent. However, the landlord cannot use online sales to determine rent unless the goods or services were collected or provided from the retail premises.
Otherwise, the Act does not regulate the use of turnover data. However, there is an existing voluntary code, ‘Retail Code of Industry Practice – The Reporting of Sales and Occupancy Costs’ which a landlord can opt into. Therefore, landlords who are collecting turnover rent should review the industry code to determine whether they should opt in.
Tenants should consider querying the landlord as to whether they have opted into the voluntary code. Tenants should also put in place clear accounting methods to differentiate sales made online. They should take care that online sales are not included in the turnover data.
The landlord must have a genuine reason to demolish the building or part of the building. Furthermore, the landlord cannot terminate the lease unless they can prove that the demolition requires the tenant to vacate the premises. Therefore, the landlord should review the demolition clauses in their current leases to ensure that they do not breach these new requirements.
Tenants should always request details of any demolition proposal to determine whether they really have to vacate the premises. If the tenant can come up with an alternative option allowing them to stay in the premises while the demolition occurs, they can propose this to the landlord.
Lease Copies and Registration
The landlord must now provide the tenant with a signed copy of the lease after it has been executed. If the lease is longer than three years, the landlord must also register the lease with Land and Property Information.
Tenant’s Disclosure to Assignees
If the tenant wishes to assign the lease to another party, either the landlord or the tenant must prepare a disclosure statement that details the particulars of the premises. The landlord still has the initial obligation to provide a disclosure statement within 14 days. However, if the landlord fails to do this, the tenant must then prepare a disclosure statement.
Compensation for Faulty Disclosure
If the landlord fails to properly issue a disclosure statement to a tenant, the tenant will have the right to claim compensation for costs incurred in terminating the lease within the first six months.
Therefore, landlords should take care to ensure that they provide an accurate disclosure statement within the required timeframe. Doing so will minimise the risk of the tenant terminating the lease and asking for compensation.
The changes to the Retail Leases Act impose new obligations on both tenants and landlords. If you have a NSW retail lease, you should ensure that you are aware of your new rights and obligations.
Should you need further advice on how the Act applies to your retail business, call LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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