Five years ago a review was undertaken of the Retail Shop Leases Act 1994 (Qld) and on 10 May 2016 the Retail Shop Leases Amendment Bill 2015 (Qld) was passed with amendments by the Queensland government. The Retail Shop Leases Amendment Act 2016 (Qld) will commence on 25 November 2016.
The Amendment Act gives effect to the outcomes from the statutory review of the Act. The main requirements of the review were to increase the Act’s efficiency and effectiveness, reduce the red tape and compliance fees, counteract imbalances and align the Act with other retail lease legislation throughout Australia.
The most significant amendments to the Act are as follows:
Retail Leases Excluded from the Act
The Act will exclude leases that have premises of 1000 square metres or more. This aligns with various other state based legislation. It has also removed the requirement for a lessee to be a listed corporation. The Act will not apply to leases for non-retail businesses operating in multi-level buildings where only 25% or less of the total lettable area of the particular level is used for retail purposes. ATM’s, vending machines, advertising displays, storage and parking areas in common areas of a retail shopping centre are now specifically excluded from the Act.
The Act allows tenants to waive the requirement for landlords to provide disclosure statements at least 7 days before entering into a lease but a disclosure statement must still be provided before the lease is entered into.
Sublessors and franchisors may now request under the Act that a landlord provide a disclosure statement. The landlord must comply within 28 days of receiving the request. The sublessor/franchisor must pay the landlord’s reasonable costs.
Landlords will now be required to provide disclosure on the exercise of a tenant’s option to renew and the tenant will be able to withdraw from the option within 14 days of receipt of the disclosure for any reason. The tenant will now also be able to terminate
Under the Act the asigneee will have the ability to waive the disclosure period for an assignor disclosure statement.
Tenants Turnover Rent Obligations
The Act will remove the requirement for a tenant under a turnover rent lease to give the landlord monthly turnover certificates and an annual audited statement of turnover. Instead the terms of the lease will outline the tenant’s requirements to provide evidence of turnover.
The Act simplifies the notice required for major tenants to opt out of the provisions relating to implied rent review provisions and the early determination of the current market rent.
Market rent reviews are to be carried out by a specialist retail valuer on an effective rent basis.
The Act clarifies that a tenant will not be required to pay an amount for outgoings unless the lease outlines the outgoings payable by the tenant, how the outgoings are calculated and apportioned to the tenant and how the outgoings may be recovered. To calculate the apportionment of outgoings for a lease in a retail shopping centre, it has been clarified that:
- Areas within a common area of the centre or building used for a prescribed purpose (e.g. ATM’s, seating areas, storage, parking, etc.) will be excluded from the total area of a shopping centre or leased building; and
- The total area taken into account is the total area of the shopping centre or leased building owned by the landlord.
The payment of an insurance excess in relation to a claim on the landlord’s insurance policy for the centre or building will no longer be recoverable as part of the outgoings.
The Act adds new obligations for the landlord’s estimate of outgoings and audited annual statement to include a breakdown of the estimated and actual fees paid by the tenant towards the administration costs of running the centre and any other fees to be paid to a centre management entity.
The Act also allows the tenant to withhold payments for their apportionment of outgoings until the landlord provides the outgoings estimate or audited annual statement.
Landlords Promotion and Advertising Obligations
If a lease requires a tenant to pay the landlord for promotion and advertising, the landlord must provide the tenant with a marketing plan and an audited annual statement within three months after the end of the period which it relates to.
The Act requires the tenant to give written notice to the landlord of the tenant’s loss or damage as soon as possible after it is suffered. Failure to do so will not affect the tenant’s right to compensation but will be taken into account when calculating the compensation. A landlord will not be responsible to pay compensation for action taken as a reasonable response to an emergency or acting in compliance with a statutory duty.
The Act prevents double dipping on compensation by specifying that if the landlord causes the tenant to vacate the premises before the end of the lease or renewal because of the extension, refurbishment or demolition of the retail shopping centre or building, the lessor will not be liable to pay compensation to the extent the tenant is otherwise entitled to payment of relocation costs or reasonable compensation.
The Act introduces an exception to the rule that an agreement about compensation payable is void to the extent it limits the amount of compensation. The Act now provides that a lease may limit a claim for compensation for an anticipated disturbance in the first year from the date the lease is entered into, provided that the landlord gives the tenant written notice before the lease is entered into containing certain information about the nature of the anticipated disturbance. It will allow greater certainty for landlords who have short term refurbishment and expansion programs.
The compensation provisions will now apply to a tenant who is holding over under an expired retail shop lease with the landlord’s consent.
Landlord’s Ability to Recover Costs
In the past, landlords have not been able to recover legal and other expenses for the preparation, renewal or extension of the lease. The Act now allows a limited ability for the landlord to recover its costs if legal costs are payable for the preparation of a final lease in situations where the parties agree to the terms of a proposed lease, the prospective tenant gives written notice to prepare a final lease but does not execute the final lease.
The Act also removes the landlord’s ability to recover costs relating to obtaining mortgagee’s consent from the tenant.
Release on Assignment
Previous problems occurred after the last substantial amendment to the Act which has now been rectified so that a guarantor (as well as an assignor) will be released from any liability under the lease resulting from a default by the assignee, provided the disclosure regime has been complied with on assignment.
Provisions in a lease requiring a tenant to refurbish or refit the premises will be void unless the nature is detailed specifically in the lease with the extent and timing of the required refurbishments. This amendment is similar to the provisions they have in NSW.
The Act will apply to all leases which are entered into or renewed at any time. However, there are some parts of the Act which will not apply in particular cases depending on the nature of the lease and when the lease was entered into or renewed. For example:
- If premises become a retail shop after the lease commencement then the Act will not apply to the lease, an assignment of the lease or a renewal under an option.
- Alternatively, if premises cease to be a retail shop after the lease commencement then the Act continues to apply to the lease, an assignment of the lease or a renewal under an option.
- Previous amendments to the Act, allowed existing lease to generally be maintained. However, this will not necessarily be the case for the new amendments made to the Act.
- There are new comprehensive transitional arrangements which outline that some of the amendments will apply to existing leases whilst others will only apply to leases commencing after the start of the amendments to the Act.
- It is therefore important that careful consideration be given when reviewing existing lease to determine if the amendments will apply or not.
Planning for the Amendments
Regardless of the commencement date of the amendments to the Act, for those involved in retail leasing, you should be aware of the amendments and where necessary, alter the lease and internal systems in readiness.
If landlords are planning redevelopments, they must take into account the disclosure arrangements and lease conditions to ensure they can take advantage of the compensation amendments.
Landlords should have their heads of agreement, standard leasing documents and disclosures reviewed and amended to comply with the new requirements.
Landlords and centre managers should review their outgoings statements to ensure they are compliant and start drafting their new marketing plan.
Tenants, landlords and agent need to learn about the amendments and how they will impact on their daily operations.
If you have any questions or would like to discuss your requirements to transition to the new Act please contact our office on 07 3876 5111. We offer a no obligation consultation for retail landlords and tenants.