02 Mar 2011

NSW looks at more changes to the Retail Leases Act

by Greg McHugh, Janelle Brooks

The proposed changes to NSW's Retail Leases Act attempt to clarify the operation of the Act and further level out a perceived imbalance of power between large lessors and small lessees.

Following closely on the heels of the introduction of a harmonised lessor disclosure statement for New South Wales, Victoria and Queensland on 1 January 2011 come further proposed amendments to the New South Wales Retail Leases Act 1994.

On 10 January 2011, the New South Wales Government released an exposure draft of the Retail Leases Amendment Bill 2011. The proposed legislative changes are in response to criticisms levelled at the Act and aim to provide clarity and level out the perceived imbalance of power between high-powered lessors and small retail lessees.

Retail Leases Amendment Bill 2011

As the Bill is an exposure draft it may not be enacted in the same form (particularly given the potential change of Government with the NSW election less than one month away). However, prudent lessors and lessees should evaluate the proposed amendments and consider any potential impacts on their business.

The Bill proposes the following main additions and amendments to the Act. A number of the amendments proposed in the Bill are clarifications of existing provisions.

Disclosure Statements (section 11)

A lessor will be specifically required to give the lessee a lessor's disclosure statement where the lease is renewed, including extended (except where there is no increase in rent).

A lessee may require a lessor to provide a lessor's disclosure statement at least seven days before the last day for the exercise of an option to renew. This should enable lessees to make a more informed decision on whether to exercise the option to renew.

A lessee that terminates a retail lease due to the lessor failing to provide a disclosure statement, or for providing a materially false or misleading statement will specifically not be prevented from claiming compensation for damage under section 10 of the Act.

Costs payable by lessee (sections 12 and 13)

A lessee will specifically not be required to contribute to outgoings unless they are disclosed in the lessor's disclosure statement.

An independent quantity surveyor is to be appointed to make a determination where the parties cannot agree on the maximum cost of, or the calculation of costs, where a lessee is to pay for works by the lessor to enable the lessee to fit-out.

Registration (section 15)

Retail shop leases are required to be registered if the lease provides so, if the parties agree so or if the lease is for three years or more. For this purpose the term of the lease includes any term by which the lessee may extend or renew the lease.

Bank guarantees (section 16)

The Director General of the Department of State and Regional Development may publish guidelines on when a lessor may draw down on a bank guarantee and procedures in relation to the bank guarantee. Lessors and lessees may ultimately consider factoring these guidelines into the bank guarantee provisions in leases.

Rent adjustments (section 18)

The prohibition against clauses preventing or limiting decreases in base rent will specifically extend to base rent adjustments as a result of the lessee exercising an option to renew.

Land tax (section 26)

There will be a prohibition on the lessor passing on land tax as an outgoings expense. This amendment will bring New South Wales into line with Queensland and Victoria.

Alterations and refurbishment (sections 33 and 38)

The lessor must give the lessee six months' prior notice (three months if the lease is less than 12 months) of proposed alterations to or refurbishment of the building or retail shopping centre by the lessor where the lessee's business is likely to be adversely affected. Presently only two months' notice is required.

When the lessee is required to carry out refurbishment or refitting, sufficient details of the nature and the extent of the works must be specified, to enable the lessee to make a reasonably accurate assessment of the likely cost.

Relocation of lessee to alternative premises (section 34A)

Relocation provisions in a retail shop lease are deemed to require that when the lessor offers a new lease of an alternative shop it must be of reasonably comparable commercial value to the existing shop, unless it is not reasonably practicable for the lessor to do so. If the alternative accommodation is not of reasonably comparable commercial value and the lessee terminates the existing lease under section 34A, the lessee may recover, as compensation, the lessee's depreciated fit-out costs.

Demolition (section 35)

Once a notice of termination on the ground of proposed demolition is issued to a lessee, the lessor cannot require the lessee to make any repairs or improvements to the building except for the purpose of safety or security.

Assignment of lease (section 39)

It will specifically be the responsibility of the lessee to provide sufficient information to the lessor so that the lessor may determine if it is entitled to withhold consent to the assignment of a retail lease.

Advertising and promotion contributions (section 56)

The lessee will be entitled to a refund of its contributions towards advertising and promotion costs that remain unspent at the end of the lease, where the amount is required to be applied towards future advertising and promotion costs.

Administrative Decisions Tribunal (ADT) (sections 71 and 71A)

The monetary limit of the jurisdiction of the ADT will be raised to $750,000.

Harmonised landlord disclosure statement

The disclosure requirements of the harmonised lessor disclosure statement came into force in Victoria, Queensland and New South Wales on 1 January 2011, following the enactment of the Retail Leases Amendment Regulations 2010 (Vic), the Retail Shop Leases and Another Regulation Amendment Regulation (No 1) 2010 (Qld) and the Retail Leases Amendment Regulation 2010 (NSW).

The purpose of the amendments was to harmonise the different disclosure statement requirements in those jurisdictions into one consistent disclosure statement (save for any legislative differences such as land tax being presently able to be passed on by lessors as an outgoings expense in New South Wales).

As a result of the amendments, lessors in those jurisdictions are under greater disclosure obligations in respect of retail leases and must use the harmonised lessor disclosure statement, as provided in their State's regulations.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.