Insights

The Retail Leases Amendment (Review) Bill 2016 was passed by the NSW Legislative Assembly without amendment on 15 February 2017 and now will be considered by the NSW Senate.

If passed, the Bill will result in a number of important changes to the Retail Leases Act. These include:

1. Lessor disclosure statements: Disclosure of outgoings

A lessee’s liability for outgoings will be limited to those disclosed in the lessor disclosure statement.

If an estimate is given without a reasonable basis, then the lessee’s liability will be limited by reference to the estimate. Advertising and promotion costs are not outgoings for this purpose and taxes or levies imposed by legislation after the disclosure is given are excluded.

The definition of ‘outgoings’ will specifically include fees for services provided by the lessor in connection with the management, operation, management or repair of the retail shop building or land.’ There had previously been some discussion to remove the lessor’s ability to recover this from the lessee but has remained at least for now.

A lessor’s disclosure statement can now be amended if the parties agree in writing. This avoids having to reissue a disclosure statement and waiting a further 7 days before entering into the lease.

2. Lessor disclosure statements: Right to compensation for lessee

Lessees will now have an entitlement to compensation where they terminate the lease during the first 6 months for a failure by the landlord to give a disclosure document or one that is incomplete, false or misleading. Compensation will be payable for costs reasonably incurred by the lessee in entering into the lease, including fit-out costs.

Careful attention will need to be given to the preparation of lessor disclosure statements, particularly in the case of leases with longer terms as an error in the estimates provided could prove expensive for the lessor.

3. Removal of minimum 5 year term requirement

The existing requirement for a minimum 5 year term for retail leases is to been removed.

This also means that the certificate under the existing section 16 of the Act (which required the lessee to incur the costs of a lawyer or licensed conveyancer) will no longer be required.

4. Premises used for certain non retail purposes excluded from the Act

Certain premises that are used wholly for certain non-retail purposes will be excluded from the Act. This includes ATMs, vending machines, public telephones, children’s rides, signage display, internet booths, private post boxes and certain storage uses.

The Act will not apply to retail shops that are stalls in a market unless the market is a ‘permanent retail market’ (as defined in the Act).

5. Timeframes for lease execution and registration

The requirement for the lessor to return the signed lease will be increased from 1 to 3 months.

A lease for a term of more than 3 years will need to be registered within 3 months after the executed lease is provided by the lessee, unless there is delay in obtaining head lessor or mortgagee consent or requirements under the Real Property Act outside of the lessor’s reasonable control.

A failure to comply will be an offence with a maximum penalty of $5,500.

6. Return of bank guarantees

The lessor will be required to return a bank guarantee to the lessee within 2 months after the lessee completes performance of the obligations under the lease. This specified timeframe will be welcomed by many lessees who currently have to bear the cost of a continuing facility and having their funds locked up without any certainty of when the lessor will return their security.

7. Turnover rent and online transactions

Revenue from online transactions will be excluded from the calculation of turnover rent except where there is a sufficient connection with the retail shop, such as transactions where goods or services are delivered or provided from or at the retail shop or retail shopping centre or where the transaction takes place while the customer is at the retail shop.

Similarly the lessee will not be required to provide the lessor with information about online transactions unless those exceptions apply.

8. Mortgagee consent expenses

The prohibition on the lessor recovering lease preparation expenses will be specifically extended to mortgagee consent expenses.

9. Police checks

If a lessor requires police or security checks for employees or contractors of the lessee during the carrying out works, then the lease will be required to not only contain such a provision but the written approval of the Registrar of Retail Tenancy Disputes will need to be obtained. It would be hoped that the approval process will be streamlined, so that works are not delayed.

10. Procedure for seeking consent to assignment

The amendments clarify the existing process for seeking consent to assignment. They will also provide that where a retail shop lease has been awarded by public tender, the lessor can refuse consent if the proposed assignee fails to meet any criteria of the tender.

11. Operation of demolition provisions

The amendments clarify that the protections available to a lessee when the lease is to be terminated on the grounds of a proposal to demolish the building of which the shop forms part extend to termination on the grounds of proposed demolition of any part of the building.

They will also clarify that termination of a lease on the grounds of proposed demolition is only permitted if the proposed demolition cannot be carried out practicably without vacant possession of the shop.

12. Jurisdiction of tribunal

The monetary jurisdiction on NCAT will be increased from $400,000 to $750,000.

13. Penalty notices

There will be a new regime allowing for the issue of penalty notices for offences against the Act.

Given the significance of the changes, lessors and their managing agents should keep up to date with the passage of the amending legislation, any further changes and the eventual commencement.

For further information contact Amy Harper on +61 2 4221 9311.