DISCLAIMER: This article was written to provide a high-level overview and does not constitute legal advice, and I recommend that you obtain a professional opinion to address your specific circumstances.
The new retail leases act comes into effect in July 2017.
There is good news for both landlord and tenant. The changes are incremental, attempting to clarify, rather than making revolutionary changes, but there are some important implications to consider. (These changes do not apply to the termination of a lease that occurs before the commencement of these changes).
Examples of simple clarifications are:
- Landlord’s mortgagee consent fees are not recoverable from tenants.
- Definition of Outgoings has been expanded to include fees charged for the management, operation, maintenance or repair of the retail shop building or land.
- “Retail shop building or land” is defined to mean the building in which the retail shop is located or any building in a retail shopping centre, and includes any areas used in association with any such building. (This may be important to some landlords where certain parts of the building may have been previously excluded from being included in outgoings recoveries, potentially could be included in the future.)
- This Act does not apply to a retail shop that is a stall in a market unless the market is a ‘permanent retail market’. Think of Paddy’s Markets etc. as being a ‘permanent retail market predominantly used for retail businesses and that operate in a building or other permanent structure the sole or dominant use of which (or of the part in which the market operates) is the operation of the market.” That is; a stall in a permanent retail market is not a retail shop to which this Act applies unless it satisfies the definition of retail shop in section 3. The Act will apply to agreements for lease in the same way that it applies to a lease.
- It clarifies that certain shops excluded from the Act and Schedule 1A – specifically excluded from the operation of the Act such as ATMs, Kiddy Rides, Communication towers, Signage and more.
- NCAT’s jurisdiction to hear a retail tenancy claims or an unconscionable conduct claim is increased to $750 000 (from $400,000).
A few of the more far-reaching changes that may trip up careless administrators, are as follows:
If the actual amount of an outgoing which was estimated in a lessor’s disclosure statement is more than the amount which was estimated, unless there was a reasonable basis for the estimate when it was given, the lessee’s liability to pay that outgoing is to be on the basis of the amount estimated (instead of the actual).
If the lessee’s liability to pay the actual amount is reduced because there was no reasonable basis for an estimate of the outgoing, any liability of the lessee in respect of any subsequent increase in the outgoing is to be reduced in the same proportion as the actual amount was reduced.
Example: the lessor’s estimate for repairs and maintenance is 20 per cent less than the actual amount and there was no reasonable basis for determining the outgoing, the lessee is only required to pay based on the estimate and its ongoing contribution to that outgoing will be reduced by the same proportion.
Note: there are no guidelines to determine what a “reasonable basis” is.
The lessor is required to indicate whether or not a lessee’s contribution to outgoings is to be a fixed amount or a floating amount.
This amendment is not retrospective.
The three month period is to be extended for any delay attributable to the need to obtain consent from a head lessor or mortgagee.
Minimum 5 year term requirement has been abolished. (The sections of the Act which apply to the minimum five year term requirement continue to apply to a retail lease in force before the commencement of the amending Act.
If a retail lease is for a term of more than three years or the parties have agreed that it should be registered, the lessor must lodge the lease for registration within three months after the lease is returned to the lessor or the lessor’s solicitor.
Revenue from online transactions are to be excluded from turnover, except where:
- the goods or services concerned are delivered or provided from or at the retail shop; or
- the transaction takes place while the customer is at the retail shop.
Demolition no longer has to be of the whole building of which the premises forms part. The amendments also clarify that the lease cannot be terminated unless the proposed demolition cannot be carried out practicably without vacant possession of the premises.
The definition of “demolition” has also been amended to include repair, renovation and reconstruction and will no longer be qualified as having to be “substantial”.
Next week we will conclude this overview by addressing important changes and implications for the lease administration and assignment process.
Dennis Price, Founder at www.yearone.solutions