On 10 May 2016, the Retail Shop Leases Amendment Bill 2015 (Qld) was passed (“the 2016 Act”). It received royal assent on 25 May 2016 and provides a number of amendments to the Retail Shop Leases Act 1994 (Qld) (“the 1994 Act”). The amendments will commence on a date to be fixed by proclamation. However, having regard to the Government’s previous comments of their being a six month transition, the 2016 Act is likely to commence operation on 25 November 2016.
The 2016 Act amends a number of key provisions within the 1994 Act including excluding some leases from operation of the Act and changing the manner in which Landlords and Tenants deal with certain issues under Retail Shop Leases.
Whilst there is a transition period to allow the retail industry time to prepare for the significant changes to retail leasing, it is important for all Landlords and Tenants to act now.
We have highlighted some of the important changes however the following summary is by no means exhaustive. If you require further information regarding the proposed changes please contact our office.
The most significant changes to the 1994 Act include:-
“Retail Shop Lease”
The 2016 Act has refined the definition of a “retail shop lease” by excluding some forms of leases. For example, the 2016 Act now excludes the following types of leases from the definition:-
- Leases with a floor area of more than 1000m2 (previously this only applied where the Tenant was a corporation)
- Leases for non-retail uses in retail shopping centres where only 25% or less of the total lettable area of the relevant level of the centre is used for retail purposes
- Leases where the premises are wholly or predominately used for the carrying on of a business by a Tenant for a Landlord as the Landlord’s Agent
- Leases for ATM’s or other forms of vending machines within retail shopping centres
A lease will now be considered as having been ‘entered into’ between the parties on the earliest date that the:-
- Lease is signed by all parties
- Tenant takes possession of the shop under the Lease
- Tenant first pays rent pursuant to the Lease
Disclosure
The 2016 Act requires Tenants to give the Landlord a disclosure statement at least seven days before the lease is entered into. However it also allows the Tenant to waive this seven day disclosure period. However, there is still the requirement for the documents to be provided before the Tenant enters into the lease (refer to definition of ‘entered into’ above).
The 2016 Act now requires Landlords to give a current disclosure statement to the Tenant within seven days of exercise of an option unless the Tenant waives this requirement. The Tenant has an option to withdraw the notice of exercise of the option within fourteen days of receiving the disclosure statement. Failure to provide the current disclosure statement will give the Tenant the right to terminate in the first six months of the option.
Rent and Outgoings
Ratchet clauses and multiple rent reviews can now be agreed to with major Tenants. The Tenant however must give notice to the Landlord waiving the rent review provisions in the Act.
If the Tenant exercises its rights under the Act to have an early market rent review before exercising its option renew, the ‘window’ for the Tenant to exercise its option will now close twenty-one days after the market rent is agreed or determined, even if that date extends beyond the expiry date of the Lease. The market rent review is to be conducted by a specialist retail valuer.
It is important for Landlords to note that outgoings can only be recovered from a Tenant if the Lease specifies the outgoings payable by the Tenant, how the outgoings will be determined and apportioned to the Tenant and how the outgoings may be recovered by the Landlord.
Landlords now need to provide Tenants with outgoing estimates and audited statements. For retail shopping centres in particular, outgoing estimates and annual audited statements are now required to break down total management fees into administration costs and management fees. The Tenant can withhold payment of outgoings until these statements have been provided by the Landlord.
In calculating and apportioning outgoings, the Landlord will now have to exclude those parts of the common areas that are leased or licenced. For example, any part of the common area that is leased or licenced for ATM’s, vending machines, storage, parking, information or the like will be excluded for the purposes of apportioning outgoings.
Compensation, Refurbishment and Relocation
The application of the compensation provisions of the 1994 Act have been amended to make it clear that they do apply for a holding over Lease and where there has been business disruption where the Landlord’s actions are in response to an emergency or compliance with any duty imposed by law or any relevant authority.
If the Tenant does claim compensation for business disturbance, the Tenant is required to give the Landlord written notice of the loss or damage suffered as soon as practicable after it has occurred and the Tenant’s failure to do so is to be taken into account in determining the amount of compensation payable.
A Lease can now limit the compensation for disturbance during the first year of the Lease provided the Landlord gave the Tenant written notice of the possible business disturbance.
If the Lease provides an obligation to refurbish it must specifically identify details of the nature, extent and timing of the refurbishment failing which those provisions will be deemed void.
Under the 2016 Act, the Landlord is now restricted to moving the Tenant’s business (if the business is within a retail shopping centre) to alternate premises within the centre. If the Tenant does not wish to be relocated and instead wishes to terminate the Lease then the Tenant must now give the Landlord at least one month’s written notice of the earlier termination (previously it was only seven days’ notice).
The 2016 Act will affect those in the retail leasing industry including Landlords, Tenants and Agents. If you have any questions or require any assistance in respect of the transition please contact our office.
