After a number of years in the making, the long awaited amendments to the Retail Shop Leases Act 1994 (the Act) were finally passed by parliament on 10 May 2016.
The passing of the Retail Shop Leases Act Amendment Bill 2015 sees some significant changes to the way in which retail leasing will be conducted in the future.
What are some of the changes?
While the amendments are extensive, set out below are a number of the key reforms, including:
Exclusion of certain leases from the operation of the Act – including:
- any premises having a floor area of 1000m2 or more will no longer be captured by the Act;
- introduction of the concept of a “non-retail lease” in a retail shopping centre, which will allow certain non-retail leases located in a retail shopping centre to be exempt from the Act;
- ATM’s and Vending Machines are now specifically excluded from the operation of the Act.
At last, a tenant can waive the seven day disclosure period! However, landlords must still provide tenants with the relevant disclosure and draft documentation before the tenant enters into a lease.
Disclosure on exercise of an option
Landlords must now give tenants a current disclosure statement within seven days of the tenant exercising an option to renew, unless the tenant waives that requirement. Tenants then have 14 days from receipt of the disclosure statement to withdraw the exercise of option for any reason. Unless waived, if a landlord fails to provide a current disclosure statement, a tenant can terminate the lease in the first six months of the option period.
Rent Reviews and Ratchets
Ratchet clauses and multiple rent review mechanisms can now be imposed upon ‘major lessees’ provided that the tenant gives written notice to the landlord waiving the rent review provisions in the Act.
Tenants are no longer required, under the Act, to provide monthly turnover certificates and annual audited statements relating to turnover. However, as it will be impossible for a landlord to calculate the amount of turnover rent payable without these, we can expect to see more stringent drafting of turnover rent clauses in leases.
Extension of release on assignment
As long as the required assignment disclosures are made, guarantors are also now automatically released on assignment, along with tenants.
Landlords who require refurbishment during the lease term will need to ensure their leases provide sufficient details of the nature, extent and timing of the required refurbishment. Failure to include this information will result in the clause being unenforceable.
Landlords are required to pay mortgagee consent fees – the Act now prohibits those costs from being passed onto tenants.
The Act now also allows for a landlord to recover its costs of preparing the final lease where a tenant has negotiated a lease and called for its issue in final form but does not proceed to sign.
As the majority of legal costs will have been incurred prior to this time, this will have little effect on landlords left swinging by tenants at the eleventh hour.
The Act now allows a landlord to include a clause in a lease limiting tenants’ compensation claims for specific business disturbances, where such disturbances are to take place during the first 12 months of the term.
The clause must be highly descriptive and specific, including such things as a specific description of the nature of the anticipated disturbance, a statement assessing the likelihood of the anticipated disturbance occurring (including an indication of the basis on which the assessment was reached) and a statement of the timing, duration, and effect of the anticipated disturbance, so far as those can be predicted.
A general statement to the effect that an anticipated disturbance may occur without setting out particulars is not sufficient.
As you will see from the above, the landscape in which we operate retail leasing transactions is subject to significant change. The above, of course, is only a snapshot of some of the major changes to the Act.
No date has yet been set by when the amendments Act will take effect, but Government has indicated that the amendments will not commence until six months after the Bill is given assent.
Despite the delayed commencement of these amendments, it is important for landlords and tenants alike to be aware of the changes and where necessary amend their documentation and practices to align with these new requirements.
Please do not hesitate to contact any of our property team if you would like any further information on your rights and obligations with respect to these changes.