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12 Dec 2019

Victorian landlords will need to review administration processes, if changes to the Retail Leases Act are passed

By Sharene Hambur

Essential safety measures cost recovery, disclosure requirements and security deposits, will all be affected and new provisions for cooling off periods and market rent reviews prior to exercise of options will be introduced, if the proposed changes to the Retail Leases Act 2003 (Vic) are passed.

Victorian landlords and tenants have been dealing with the uncertainty created by the 2015 Advisory Opinion of VCAT on whether landlords can recover costs associated with the maintenance and repair of essential safety measures from tenants.

The Retail Leases Amendment Bill 2019 seeks to resolve this uncertainty, but also looks to introduce new regimes that will significantly affect leases governed by the Retail Leases Act 2003 (Vic) and require significant changes to the administration of retail leases.

Essential Safety Measures

The Bill provides that a retail lease may, if drafted to do so, require a tenant to pay for costs associated with the repair and maintenance of essential safety measures or essential safety measures costs associated with the installation of a fitout for which the tenant is paying. A consequential amendment will accordingly be made to the Building Act 1993 (Vic) to prevent a tenant recovering such costs from a landlord if the tenant has agreed to pay those costs under its retail tenancy lease. However, even if enacted, the Bill clarifies that a building owner will remain primarily responsible for complying with the Building Act. 

Disclosure when entering into and renewing a retail lease

Substantial changes to disclosures required when entering into and renewing a retail lease are proposed:

  • A disclosure statement and copy of the proposed lease (which must now include the name of the tenant, the proposed rent and the term) must be provided 14 days (instead of 7 days) prior to entering into the lease.
  • If the proposed lease is different from one previously provided, the differences must be noted, otherwise the landlord will commit an offence and liable for a substantial financial penalty.
  • If the landlord gives a disclosure statement and/or proposed lease to a tenant less than 14 days before the lease is entered into, the term of the lease will not commence until 14 days after those documents are provided.
  • Any disclosure statement issued on renewal of a lease must set out how the statement differs from any previous disclosure statement (including where the disclosure statement relates to renewal of a lease entered into before the new provisions come into effect, unless that lease expires less than 21 days thereafter).

Security deposits

Under the proposals, a landlord must return a security deposit within 30 days after the end of a lease. Currently, security deposits must be returned as soon as practicable. This amendment will also apply to leases entered into prior to the commencement of the new provisions.

Options to renew leases

A landlord's obligation to give prior notice of a tenant's right to exercise of an option is also proposed to change by altering the time period for giving such notice from between 12 months and 6 months to at least 3 months prior to the last date for exercise of the option. In addition, the amendments propose that the form of the notice also include:

  • the rent payable for the first 12 months of the further term;
  • notice that the tenant may require an early review of rent (see below);
  • notice that a cooling off period may be available (see below); and
  • details of any changes to the most recent disclosure statement provided to the tenant (other than changes as to rent).

These changes will apply to leases entered into prior to the commencement of the amendments if the last date for exercise of an option is more than 3 months after the amendments take effect.

Early rent review

If passed, the Bill will give tenants the right to require an early determination of market rent at the commencement of any option term. Within 28 days of receiving notice of the tenant's right to exercise an option from the landlord, the tenant will be able to request an early determination of market rent. Then, if a specialist retail valuer is appointed to determine market rent, the date for the tenant to exercise its option will, if necessary, be delayed to 14 days after the tenant is advised of the outcome of the valuer's determination. Additional provisions allow for the extension of the term, if necessary, to allow for determination of the rent and consideration of this by the tenant prior to exercising its option.

Cooling off period

The Bill also provides a new 14-day cooling off period for tenants who exercise an option and do not request an early market rent review. They would have 14 days after exercising the option to give notice that they no longer wish to renew the lease.

Retail leases administration and documentation will need review

If passed, the provisions of the Bill relating to essential safety measures will be effective from the day after the grant of Royal Assent. The balance of the provisions will apply from the earlier of the Proclamation Date and 1 October 2020.

As can be seen from the brief summary above, the proposed Bill will substantially affect the administration of leases under the Act. It will place considerable additional obligations on landlords and grant substantial additional rights to tenants. At a bare minimum, you will need to consider reviewing your standard documents and administrative processes.

If you'd like to know more about how these changes could affect you, or would like help in preparing for them, please contact us.

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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.