Are you Ready for the Changes to the Retail Shop Leases Act?

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By Tony Butler, Partner

Amendments to the Retail Shop Leases Act as enacted by the Retail Shop Leases Amendment Act 2016 will commence on 25 November 2016.  The amendments will apply to all new leases entered into after this date.  Some provisions such as the new release of guarantor provision will apply to existing leases where the assignment of the lease is entered into after 25 November 2016.

Key proposed amendments include:

1.Application of the Act

  1. Some provisions of the Act will no longer apply to leases to state, commonwealth or local governments.
  2. The Act will no longer apply to service stations where the Competition and Consumer (Industry Codes – Oilcode) Regulation 2006 applies to the carrying on of the business under a fuel re-selling agreement.

2. What is a retail shop? 

  1. Any shop with a floor area of more than 1,000m2 will be excluded from the provisions of the Act. Currently, to be excluded, the tenant must also be a listed corporation or a subsidiary of a listed corporation, but this second requirement has been dispensed with.
  2. In mixed use buildings or developments that incorporate a “shopping centre” for the purposes of the Act, it will be easier to exclude non-retail parts of the development from the operation of the Act by floor or building e.g. where the proposed lease is not retail and is to be located on a floor of a building or a centre and 25% or less of the total lettable floor of that floor is used for retail, then the proposed lease will be excluded from the Act.
  3. ATMs and vending machines in common areas of shopping centres are expressly excluded from the operation of the Act.
  4. Storage and parking licences of common areas are also excluded.

 3. Outgoings

  1. Areas taken up by vending machines, ATMs, seating and other furniture, storage, trade out areas, parking etc are not to be included in the total area of the centre for the purposes of calculating the tenant’s proportion of outgoings.
  2. If a landlord fails to give an annual outgoings estimate or audited annual statement, the tenant may withhold payments in relation to outgoings until the landlord gives the estimate or audited annual statement. All landlords need to appreciate the significance of this provision.
  3. The outgoings estimate and audited statement must include a breakdown of the estimated fees to be paid towards the administration costs of running the centre and any other fees to be paid to the centre management entity.
  4. Outgoings relating to other tenants trading outside of core trading hours for the centre cannot be included in general outgoings. They can only be recovered from the trading tenant(s).

4. Rent Review for major tenants

  1. Tenants with more than five retail premises can contract out of rent review provisions banning ratchet clauses, allowing for rent to be reviewed to the higher of two or more review methods, or having the effect of reserving to a party a discretion to apply 1 or 2 or more methods of calculating the rent.

5. Marketing and promotion

  1. The landlord must make an annual audited statement of the landlord’s marketing and promotional expenditure available to tenants who pay amounts for promotion and advertising of the shopping centre, within 3 months of the end of the relevant period.

6. Compensation provisions

  1. Compensation provisions will apply to holding over tenancies under leases that have expired.
  2. The tenant must give the landlord written notice of the loss or damage giving rise to a claim of compensation as soon as practicable after the loss or damage is suffered. If the tenant fails to give the notice, it is still entitled to compensation, but the amount of compensation may be affected.
  3. Compensation is no longer payable as a result of loss or damage suffered because the landlord or someone acting under the landlord’s authority takes action as a reasonable response to an emergency or in compliance with a duty imposed under an Act or resulting from a requirement imposed by an entity acting under the authority of an Act.
  4. The landlord may limit the amount of compensation payable to the tenant in limited circumstances. In particular the disturbance giving rise to the claim must occur within 1 year of the lease being entered into, and the landlord must give the tenant a written notice giving details of the disturbance in accordance with the Act.

7. Costs of lease

  1. Mortgagee consent fees will become the cost of the landlord.
  2. Landlords can require prospective tenant’s to pay the landlord’s reasonable legal and other costs for preparation of a final lease where the terms of the proposed lease have been agreed, the tenant gives the landlord a written notice to prepare a final lease and the final lease is prepared, and the prospective tenant fails to sign the lease.

8. Assignment of lease

  1. Tenants and their guarantors (who were not previously released) will be released from any liability arising out of the default of the assignee on assignment. The outgoing tenant must comply with its disclosure obligations under the Act for the release to be effective

9. Refurbishment and redecoration/refitting

  1. Provisions of this nature will be void unless the lease gives general details of what is required in terms of the nature, extent and timing of the refurbishment.

10. Disclosure obligations

  1. Sub-lessors and franchisors have the right to request the landlord provide a disclosure statement and the landlord must provide an up to date disclosure statement within 28 days of request.
  2. Landlords must provide disclosure statements within 7 days after receipt of a notice from the tenant exercising its option (unless the tenant waives this right in writing at the time of exercising its option). The tenant may withdraw its notice exercising its option, without giving a reason, within 14 days after receiving a current disclosure statement. This is a significant amendment as this changes the common law.
  3. The right of the tenant to terminate the lease within 6 months of entering into a lease if the landlord fails to give the disclosure statement or the disclosure statement is defective has been extended to tenants renewing their lease or exercising an option. Compensation is also payable on account of a failure to provide a disclosure statement or providing a defective statement.
  4. A lessee or assignee may waive the 7 day disclosure requirement if the lessee or assignee gives the lessor a legal advice report under section 22D which states that the lawyer has given the prospective lessee or assignee advice about the legal meaning and effect of the waiver.

11. Turnover information

  1. The 2016 amendments to the Act remove the requirements for a tenant (whose rent is calculated as a percentage of their turnover) to give the landlord turnover certificates and audited turnover statements.
For further information, please do not hesitate to contact us.

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