Commercial Lessors and Lessees: are you ready for the amendments to the Retail Shop Leases Act?
On 10 May 2016, the legislation to amend the Retail Shop Leases Amendment Act was finally passed by the Queensland parliament, after years of consultation and process.
The Retail Shop Leases Amendment Act 2016 has received proclamation and will commence on 25 November 2016. This means that Lessors and Lessees must ensure they are across the new requirements by this time.
We outline the main changes to the rights and obligations of Lessors and Lessees below.
Application of the Act
The following additional exclusions to the Act will now apply:
- Currently under the Act a lease for a floor area of more than 1000m2 would only be excluded if it was to a Lessee who is a listed company or its subsidiary. The amendments now provide that any retail shop lease with a floor area of more than 1,000m2 will now be excluded from the Act.
- In a multi-storey property, the Act excludes a Lease for non-retail premises but only if the retail area on the particular level is 25% or less of the total lettable area of the level.
- In a single-level building, the Act excludes a Lease for non-retail premises but only if the retail area of the building is 25% or less of the total lettable area of the building;
- A lease for an automatic teller machine or vending machine located in the common areas of a shopping complex will also be excluded from the Act. The current Act was relatively vague as to whether the exclusions extended to these.
The Lessee will now have the ability to waive the 7 day Lessor Disclosure period, subject to the following requirements:
- The Lessor still needs give a Lessor Disclosure Statement and draft Lease to the Lessee;
- The Lessee still needs to give the Lessor a Disclosure Statement at least 7 days prior to entering into the Lease and a Legal Advice Report signed by the Lessee’s solicitor and the Lessee; and
- The Lessee needs to give the Lessor a signed waiver notice.
Disclosure obligations on the exercise of an Option
Presently under the Act when a Lessee exercises its option to extend the term of the Lease, the parties are not required to provide each other with disclosure. Under the amendments, parties must now give each other disclosure at such time.
The amendments provide that within 7 days of the Lessee exercising its option to renew the Lease, the Lessor must provide the Lessee with a Lessor Disclosure Statement.
Within 14 days of the Lessee receiving a Lessor Disclosure Statement, the Lessee may elect to withdraw its renewal notice and effectively undo the exercise of its option. The only exception to the Lessor needing to give the Lessor a Disclosure Statement is if the Lessee provides the Lessor with a waiver notice at the time of exercising its option.
In the event that the Lessor does not comply with the above disclosure obligations, then a Lessee may terminate the extended Lease within 6 months.
Similarly, where a sublease or licence is granted over the leased area, the Lessor must also provide an updated Disclosure Statement upon request from the Lessee.
Where the Lease is to be assigned, the assignee has the ability to waive the disclosure period for an assignor Disclosure Statement.
The following changes to financial matters will apply under the amended Act:
Market Rent Reviews
Where a tenant exercises its right under the Act to have an early determination of the Market Rent before exercising an Option to Renew, the “window” for the Lessee will close 21 days after the market rent is agreed to determined, even if that date extends beyond the expiry date of the Lease.
Market Rent reviews are to be conducted by specialist retail valuers on an effective rent basis.
- If the Lessor does not give a Lessee an Outgoings estimate or audited statement when required, the Lessee may withhold payment of the Outgoings until the Lessor gives the Outgoings estimate or audited statement;
- In an Outgoings estimate given by the Lessor to the Lessee, the estimate must include a breakdown of the administrative costs of running the centre and any other fees to be paid to a centre management entity;
- Outgoings may only be recovered from a Lessee if the Lease specifies the Outoings payable by the Lessee, how the Outoings will be determined and apportioned to the Lessee and how the Outgoings may be recovered by the Lessor.
- If the Lessee is required to contribute to the Lessor’s promotion and advertising costs for the centre, then at least 1 month prior to the relevant accounting period the Lessor must provide the Lessee with a marketing plan which details the proposed promotion and advertising expenditure during that accounting period;
Legal and Other Fees
- A Lessor will no longer be able to pass on to the Lessee the Lessor’s cost incurred in obtaining mortgagee consent;
- Where negotiations have been finalised and the Lessee requests a final Lease for execution, if the Lessee subsequent to that request does not proceed with the Lease, the Lessor may recover the fees for the preparation of the Lease from the Lessee.
Where a Lessee if required to pay turnover rent, the Act no longer obliges a Lessee to give a Lessor a monthly turnover certificate or annual audited statement. This means that it will be open for the parties to agree in the Lease as to the details and frequency of the turnover information to be provided by the Lessee.
The compensation provisions have been clarified to provide that a Lessor is not liable to a Lessee for business interruption where the Lessor’s actions are in response to an emergency.
A Lessee is required to give a Lessor written notice of the loss or damage suffered as soon as is practicable after it has occurred, failing which the delay can be considered when decision the amount of compensation payable to the Lessee.
A Lease may limit a Lessee’s claim for compensation if a business disturbance occurs during the first year of the Lease, and before the Lease was entered into, the Lessor gave the Lessee written notice of the potential business disturbance.
Compensation provisions will also now apply to Lessee’s who are “holding over” under an expired Lease with the Lessor’s consent.
Upon an assignment of a Lease, the Lessee and its guarantors will be released from liability from the assignment date, provided that all parties have complied with their respective disclosure obligations. This amendment clarifies the previous uncertainty under the Act as to whether or not guarantors were released from liability in such circumstances.
Where a Lease imposes refurbishment obligations on the Lessee, such Lease provisions will be void unless they specify the general details of the nature, extent and timing of the refurbishment.
The relocation provisions of the Act will apply to all relocations, not just those where vacant possession is required to facilitate a refurbishment, extension or redevelopment of the premises.
The above changes are set to come into effect on 25 November 2016 Parties to retail leases should use this time to ensure that their leases are compliant and that they have the necessary data and information available to ensure compliance with disclosure obligations and monetary related matters.
If you are a Lessor or Lessee and would like some more information about the changes or to understand your new obligations, please contact us today and we would be happy to assist.