Retail Leases Amendment Act 2005

Following a comprehensive review, including extensive industry consultation, amendments were made to the Act. These amendments commence on January 1, 2006.

The Act generally covers retail shops of less than 1000 square metres, excluding car parking and unattached storage areas, whether located on a street corner, in a strip of shops or in a shopping centre, mall, court or arcade.

The major changes to the Act are in the following areas:

1. Pre-lease stage – to enhance clarity about the requirements on both tenants and landlords prior to signing the lease
2. Operation of the lease – to improve access to information by parties to a lease, so they can negotiate on a more equal basis
3. Market rent review – to improve the effectiveness of the rent review process and the resolution of disputes about current market value
4. Retail lease bond scheme – to create a security bond scheme to safeguard the collection and management of cash bonds
5. Lease assignment – to streamline the process for transferring a lease to another person
6. Dispute resolution – to update the capacity of the Administrative Decisions Tribunal to resolve disagreements between landlords and tenants.

These changes are simple, transparent and easy to comply with. Both parties in a shop lease will be better informed about what the lease requires of them. This will lead to better business planning and fewer misunderstandings.

This summary has been prepared to provide short-form information on the amendments. The full context and detail should be checked by consulting www.austlii.edu.au to access the Act.

Summary of Changes - Download pdf version (1.058MB)

Summary information on the Retail Leases Amendment Act 2005

Pre-lease stage
Operation of the lease
Market Rent Review
Retail Lease Bond Scheme
Lease Assignment
Dispute Resolution

Pre-lease stage

Retail tenancy guide – Section 9

As well as a copy of the proposed lease, landlords will be required to give a copy of a retail tenancy guide, developed by the NSW Government, to any prospective tenant as soon as negotiations begin.

Short-term leases – Section 6A

The Act will now apply to a tenancy comprised of successive short-term leases whose total terms exceed 12 months, unless a waiver of the right to a five year lease term is given by the tenant, known as a Section 16 certi? cate.

Minimum five year terms – Sections 16 and 21A

The Act provides that a retail shop lease is to be for a minimum term of five years. A tenant can agree in writing to a shorter term by having his or her lawyer or licensed conveyancer sign a Section 16 certificate, and giving it to the landlord within the first six months of the lease.

If a lease is extended to a five year term, the landlord may change the rent from the date of commencement of the additional period and then annually, in line with movements in the Consumer Price Index for Sydney, if the lease does not stipulate any other method for determining the rent.

Disclosure statements – Schedule 2 and 2A, Sections 11 and 11A

Changes have been made to the disclosure statements exchanged between the tenant and the landlord prior to the lease, and the disclosure statement that applies when a lease is assigned to another person.

Additions to the Lessor’s Disclosure Statement, which must be given to the tenant at least seven days before the lease is signed, are:

• landlords will be required to disclose details of current legal proceedings in relation to the lawful use of the premises or shopping centre
• the right of tenants to a five year lease, if they want it, will be made clear in the Lessor’s Disclosure Statement. The tenant can, of course, agree to a shorter term lease if both parties agree (see Minimum five year terms above)

For shopping centres, landlords will have to disclose:

• the expiry date of the leases of major tenants
• the intended future mix of outlets in retail shopping centres
• further detail of information relating to administration and cleaning costs
• whether they are able to assure the tenant that the current tenancy mix in the centre will not be altered by introducing a competitor to the tenant during the course of the lease.

and to the extent where it has been collected, provide:

• the annual sales of the centre
• traffic count for the centre
• the annual turnover for specialty shops in the centre.

Operation of the lease

Outgoings estimates and statements – Sections 3, 27, 28 and 28A

There are a number of changes to provide greater clarity about expenses and outgoings the landlord can claim from the tenant.

For instance, the definition of outgoings now makes clear that such expenses are to be directly and reasonably attributable to the operation, maintenance, and repair of the building.

In shopping centres, landlords will be required to provide a breakdown of contributions towards the administration costs of running the centre and other fees paid to the management company, and further information on cleaning costs.

Tenants will be given the opportunity to make a written submission to the auditor on the accuracy of the landlord’s proposed outgoings statement. The auditor must consider such written submissions.

Tenants can withhold payment of contributions for outgoings if the landlord has failed to give the tenant the outgoings estimate or statement. Once the landlord provides the tenant with the estimate or statement, the tenant’s contribution must be paid within 28 days. No interest can be charged.

Costs before fit-out – Section 13

If a tenant or prospective tenant is required to pay for work carried out by the landlord to enable fit-out to the premises, a maximum amount or formula payable is to be agreed on between the parties before the lease is entered into. The tenant does not have to pay more than the agreed amount.

Fit-outs – Section 13A

If the landlord of premises in a retail shopping centre requires a particular standard for fit-outs to be carried out by the tenant, the lease or disclosure statement must contain a tenancy fit-out statement that contains the relevant information. The tenant will not be liable to carry out any fit-out if it is not covered by the statement.

Disturbance – Section 34

A lease may provide that the landlord is excluded from liability to pay compensation for a disturbance to a tenancy, provided the landlord gave a statement to the tenant before the lease was entered into.

This statement must include the following details:

• a specific description of the nature of the disturbance
• a statement assessing the likelihood of the disturbance occurring, including an indication of the basis on which the assessment was reached
• a statement of the timing, duration and effect of the disturbance, so far as they can be predicted.

The inclusion of a general statement to the effect that disturbances may occur during the term of the lease, without setting out those details stated above, is not acceptable.

Relocation – Section 34A

A tenant is entitled to be paid reasonable ? t-out costs and legal costs in connection with relocation. If the parties do not agree on the actual amount of reasonable costs of the relocation, the amount is to be determined by a quantity surveyor appointed by agreement between the parties or, if there is no agreement, appointed by the Australian Institute of Quantity Surveyors.

Negotiations for renewal or extension of retail shop leases – Section 44A

Landlords cannot publicly advertise the availability of retail premises during the term of an existing lease, unless:

• the landlord has offered the tenant a renewal or extension of the lease, which has not been accepted, and the landlord has advised that negotiations are concluded without result, or
• the landlord informs the tenant that they do not propose to offer the tenant a renewal or extension of the lease, or
• the tenant informs the landlord that they do not wish to enter into negotiations for the renewal or extension of the lease, or that they wish to withdraw from the negotiations, or
• the tenant has vacated or agrees in writing to vacate the shop, or
• the tenant consents in writing.

Advertising and promotion statements – Sections 54 and 55

Half-yearly and annual advertising and promotion expenditure statements must include details about the amounts contributed by the landlord and by the tenant, any unspent amounts, and amounts to be carried forward into the next period. They must also include information about expenditure relating to the shopping centre in which the shop is located.

Non-provision of marketing plan or advertising and promotion statement – Section 55A

A tenant can withhold payment of contributions for advertising or promotion costs if the landlord has for 10 business days after being requested in writing to do so, failed to:

• make a marketing plan available to the tenant, or
• provide details of proposed expenditure on an opening promotion, or
• provide an expenditure statement or an advertising statement.

The tenant must pay the withheld contributions within 28 days after the landlord provides the plan, details or statement. No interest can be charged.

Market Rent Review

Sections 3, 19, 31, 32, 32A, 72AB and 85

Where a lease contains an option to renew at current market rent, the Act provides a process for a tenant to request, in writing, a determination of rent up to six months before the lease finishes. Where a tenant seeks this early determination of the rent, the tenant has 21 days to exercise the option after they have been notified of the rent. If necessary, the term of the lease is to be extended until the end of the 21-day period.

Where a landlord and tenant cannot agree about current market rent, they can apply to the Administrative Decisions Tribunal to have the rent determined by a specialist retail valuer, at the equal cost of the parties. Both the tenant and the landlord will be able to present their case in writing to the valuer.

If one or both parties disagree with the valuation, a further application can be made to the Administrative Decisions Tribunal to appoint a panel of two valuers to review it. Both parties pay the costs of the review panel equally, unless the review panel determines market value to be within 10 per cent of the original valuation, in which case the party who applied for the review pays the whole cost.

The valuer’s decision will be final unless the Tribunal finds a fundamental error has been made, in which case the decision may be set aside.

Retail Lease Bond Scheme

A new bond scheme for retail leases will be established.

• From January 1, 2006 any cash bonds agreed as security for a new lease will need to be lodged with the scheme, within 20 business days after the bond is paid
• By April 1, 2006 any cash bonds already held for existing leases will need to be lodged with the scheme
• Forms to use to lodge bonds are available from the Retail Tenancy Unit on telephone 1300 79 55 34.

Landlords and tenants are still free to choose not to have a cash bond as a condition of a lease, and a landlord cannot unreasonably refuse a tenant’s choice to use a bank guarantee or some other form of security.

The bond monies will he held and invested by a funds manager appointed by the NSW Government. The NSW Government will ensure the bond is available for return at the end of the lease, according to the disbursement of funds agreed between landlord and tenant.

Should the tenant and landlord not agree on the allocation of funds held in the bond, a dispute must be referred to the Registrar of Retail Tenancy Disputes for mediation in the first instance. If mediation is unsuccessful a dispute may then referred to the Administrative Decisions Tribunal, Retail Leases Division.

When transferring a lease to a new tenant, landlords may seek a replacement bond from the new tenant.

Lease Assignment

Tenants are required to inform the landlord if they wish to transfer their lease. A statement disclosing key facts about the person proposed to take over the lease is prepared by the current tenant and signed by the landlord and the proposed new tenant. The proposed new tenant will be required to provide documentation showing their ? nancial standing and business experience.

Once this statement is received, the landlord will be required to make a decision on the assignment within 28 days, or the assignment is deemed to have been agreed to, provided the process has been followed.

Tenants will be protected from paying the landlord any amounts payable by the new tenant, if they give the landlord and the new tenant the Assignor’s Disclosure Statement at least seven days before the assignment.

Dispute Resolution

Misleading or deceptive conduct – Part 7A,

Division 2, Sections 62A and 70 No party to a lease can engage in conduct that is misleading or deceptive to another party to the lease, or that is likely to mislead or deceive another party to the lease. The injured party may make a claim for compensation under the Act.

Extension of time for making claims to the Administrative Decisions Tribunal – Section 71B

The Administrative Decisions Tribunal has discretion to decide to consider claims within a further three year period after the initial three year limitation period has expired.

Monetary jurisdiction of Tribunal – Section 73

The monetary limit on the Tribunal’s jurisdiction has changed to $400,000, calculated on a net basis after setting off each party’s claims against the other.

Appeals in proceedings for unconscionable conduct claims – Section 77

The Tribunal will now have a clear role in dealing with appeals arising from claims relating to both retail tenancy and unconscionable conduct. Appeals directly to the Supreme Court continue to be available on a point of law for all claims.

Transfer of proceedings from Tribunal to Supreme Court – Section 76A

If proceedings to an unconscionable conduct claim are transferred by the Tribunal to the Supreme Court, any part of the proceedings relating to a retail tenancy claim may also be transferred.

Savings and transitional provisions – Sections 84B and 84C

As a general principle, the amended Act will apply to all leases entered into after commencement of the Act. Notable exceptions are the amended disclosure statements and outgoings and estimates statements, for which a six month transitional period applies. Misleading or deceptive conduct provisions will extend to leases that were in place prior to commencement, but not to conduct that occurred before that date.

Retail Tenancy Unit
Phone: 1300 79 55 34
www.retail.nsw.gov.au

Summary of Changes - Download pdf version (1.82MB)