The Retail Leases Act 1994 (NSW) (‘the Act’) sets out the legal requirements of landlords and tenants using a premise as a retail shop. The Act prescribes what to do when starting a lease, changing the rent, transferring a lease and resolving disputes. On 8 November 2016, the NSW Parliament introduced the Retail Leases Amendment (Review) Bill 2016 (‘the Bill’). Below, we set out what the Bill will mean for both landlords and tenants.
What are the Amendments the Bill proposes?
Removal of Minimum Lease Term
The Bill proposes to remove the minimum five-year term for retail shop leases. Currently, if a tenant requires a term less than five years (or if parties agree to a term less than five years), the tenant’s solicitor must provide a certificate under section 16(3) of the Act.
Removing the minimum term will benefit tenants and landlords as they often negotiate retail leases for shorter time frames. It affords some flexibility to tenants who are usually just starting their business and testing the location as well as removes the administrative requirement to obtain the legal certificate.
Changes to Assignment
The Bill also seeks to amend the lease assignment process, noting that if the tenant was awarded the retail shop lease as a result of a public tender, the landlord could refuse the assignment if the tenant does not meet all the tender criteria.
Agreement to Lease
The proposed amendments also confirm that the Act applies to an agreement for lease, removing any doubt presently surrounding this issue. Landlords will need to ensure that they give disclosure statements in the required timeframe before the parties enter into any agreements for lease.
The Bill also seeks to extend the ground for termination to include repair, renovation and reconstruction. Currently, the tenant can only terminate a lease on the grounds of a proposed demolition where the demolition does not permit tenant occupancy. If passed, this change will benefit landlords.
Some other proposed changes include:
- Increasing monetary claims at the New South Wales Civil and Administrative Tribunal (NCAT) to $750,000 from the previous $400,000;
- Increasing the timeframe in which a landlord needs to provide a copy of the signed lease to the tenant from one month to three months; and
- Changing the existing requirements for registration, so that the landlord must register leases lasting more than three years within three months of signing the original.
What Protections Does the Bill Offer Tenants?
The Bill also proposes several changes to protect tenants, including:
- The costs of obtaining mortgagee consent will reside with the landlord. The tenant will no longer pay them as part of lease preparation expenses (making it significantly cheaper for tenants);
- The landlord must return bank guarantees to tenants within a two month period of fulfilling obligations; and
- Tenants are not required to provide turnover information for online sales to the landlord. This requirement only exists where the tenant receives goods at the premises or where the transaction takes place in the store.
Further protections resulting from the Bill relate to disclosure statements, noting:
- The tenant only pays outgoings if the landlord discloses them in the disclosure statement;
- The disclosure statement must provide both an estimate and actual outgoings. If the estimate is a lower amount than the actual outgoings, the lessee will need to pay the lower estimated amount; and
- Where the landlord does not provide the tenant with an accurate disclosure statement, the tenant can seek compensation if the landlord terminates the lease within the first six months.
What Protections Does the Bill Offer Landlords?
Landlord protections that will result from the proposed amendments include:
- The definition of outgoings will be inclusive of fees for any management services that the lessor provides;
- The parties can now amend the lessor’s disclosure statement in writing removing the need to re-issue a disclosure statement; and
- The landlord, in agreement with the Registrar of Retail Tenancy Disputes, can take out police and security checks for a tenant’s employees. However, this will undoubtedly be subject to parliamentary debate as to whether such a proposal is a breach of privacy for the tenant’s employees, who are at arm’s length to the landlord.
It’s important to remember that the proposed Bill is not yet law – they are simply changes put forward for debate. Landlords and tenants should keep a close eye as the Bill progresses through Parliament and look forward to some changes upon its enactment. If you have any further questions about what these changes mean for you, get in touch with our leasing lawyers on 1300 544 755 or fill out the form on this page.