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A bill seeking to make amendments to the Retail Leases Act 2003 (VIC) is now one step closer to becoming law in Victoria as it has now passed through the Lower House. The bill introduces some fairly significant changes to the Act which tenants should be aware of. This article will take a look at some of the key changes that the legislation is implementing.

Options 

Previously, once a tenant formally issued its notice to exercise its option to the landlord, both parties entered the option lease. This would sometimes be problematic for tenants, particularly small business tenants, who may have exercised their option to not miss out on the opportunity to secure a further term, but without:

  • seeking professional advice; or
  • commencing the formal process to review the rent.

The Small Business Regulation Review found that many Victorian tenants were unable to make informed decisions and were exercising options without sufficient information on:

  • what the rent would be; or 
  • whether there were any significant changes which would impact their lease.

This is because landlords do not have to provide further disclosure statements before the tenant has to determine whether to exercise the option.

In response to this, not only will landlords be required to give tenants notice at least three months before the last date to exercise the option (this was previously at least six months and not more than 12 months), the notice must now set out the:

  • last date the tenant can exercise the option to renew; 
  • rent payable for the first 12 months; 
  • availability of an early rent review;
  • availability of a cooling off period; and 
  • changes (if any) to the disclosure statement. 

Early Rent Reviews

Where a lease provides for rent to be reviewed on the basis of the current market rent (i.e. a market rent review), tenants will now be able to request an early review within 28 days of receiving all of the information the landlord is required to provide above. This way, the market rent is determined before a tenant has to exercise the option. This way, when it does come time to exercise, tenants can make an informed decision and know what rent they are signing up for.

If an early determination results in a rent that is less than the rent which the landlord offered in its notice, the higher rent determined will apply. 

Cooling Off Period 

The 14 day cooling off period is also something unique to the Victorian legislation. It is available to tenants who have exercised their option but have not requested an early rent review. 

Such tenants will now have 14 days to change their mind and notify the landlord that they no longer wish to exercise the option. By doing so, you will permanently lose the option and cannot change your mind and seek to exercise it.  

Essential Safety Measures 

Essential safety measures include items such as: 

  • sprinklers; 
  • fire detection alarm systems;
  • fire doors;
  • fire-rated structures; and
  • other building infrastructure items, such as exit paths.

While landlords, as owners of the building, are responsible for compliance with these items, they had previously sought to recover the cost of compliance and maintenance from their tenants. This was not specifically prohibited under the Act and was consistent with the approach of other states.

An advisory opinion released by the Victorian Civil Administrative Tribunal in 2015, however, caused some confusion in the industry. This opinion stated that landlords are expected to pay the costs of ESM compliance and cannot pass this on to tenants.

This has now been clarified under the proposed changes so that landlords can recover these costs as an outgoing. This may also apply to existing leases.

Key Takeaways

There are key changes coming to the Victorian retail leasing landscape, which will have a significant impact on both landlords and tenants. These changes include: 

  • additional disclosure obligations on landlords regarding options; 
  • a right for tenants to request an early market rent review to determine the rent before exercising the option; 
  • a 14 day cooling off period during which a tenant can withdraw its notice to exercise in certain circumstances; and 
  • confirmation that landlords can pass on the costs of compliance with essential safety measures as outgoings.

While it is not yet clear whether these changes will apply to leases already on foot, or only on leases entered into after the amendments come into effect, it is important tenants are aware of the changes. If you have any questions on these changes and your rights as a tenant, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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