Property Law Table of Contents
In this chapter- What leases are effected
- What leases are not effected
- Changes to leasing practice
- Length of lease
- Rent
- Outgoings
- Other Changes
- Disputes
- Lease forms
- Summary
From the 1st August, 1994 new legislation applies to retail shops.
Significant changes to leasing pracitice have been brought about. These
changes affect landlords and tenants and their advisers. Below is a summary
of some of the provisions of the new legislation, the Retail Leases Act,
1994.
What leases are effected
* those for "retail shops" which includes a wide variety of business types
or shops carrying on any business in a retail shopping centre
* written or oral leases
* headleases or subleases
What leases are not effected
* leases entered into before the 1st August, 1994
* leases that come about because of the exercise of an option to renew a
lease contained in a lease entered into before 1st August, 1994
* leases that come about because of an agreement for a lease entered into
before 1st August, 1994
* leases of less than 6 months
* leases for more than 25 years
* shops having a lettable area of 1,000 m2 or more
* shops carrying on a business for the lessor
Changes to leasing practice
* a landlord or agent advertising shops for lease must have a draft lease to
show prospective tenants in which the details of the tenant , term and
rent may be left blank (the maximum penalty for failing to do this is
$ 5,000)
* a copy of the draft lease must be made available to the prospective
tenant once negotiations are entered into with the prospective tenant
(maximum penalty $ 5,000)
* 7 days before the tenant enters into the lease the tenant must be given a
"disclosure statement" (failure to comply gives the tenant a right to
terminate the lease within the first 3 months)
Length of lease
* must be 5 years but that includes the term of the option for renewal of
the lease
* unless a lawyer independent of the landlord explains the legislation to
the tenant and provides a certificate that the tenant is prepared to accept a
reduced term of lease
* not less than 6 months and not more than 12 months before the end of
the lease term (where there is no option for renewal) the landlord must
offer the tenant a new lease or inform the tenant that a new lease is not
offered (otherwise the lease is extended until 6 months after the landlord
gives notification of his intentions to the tenant)
* the landlord may only refuse consent to the transfer of the lease if a
change of use is proposed, the transferee lacks financial resources or
skills or the procedure set out in the legislation is not followed
* before requesting consent to a transfer of lease the tenant must give a
copy of the disclosure statement to the transferee with details of any
changes to the information contained in it
* a written request for the landlord's consent to a transfer of the lease
must be made furnishing such reasonable information as the landlord
may require
* the landlord will be taken to have given his consent to a transfer of lease
if the landlord has not given written notice of his decision within 42
days
Rent
* rent reviews cannot occur more often than once a year
* rent can increase by specified amounts or percentages at intervals of less
than a year
* a choice of rent review methods at the time of review is not permitted
* giving one party a discretion as to whether or not to apply the rent
review is not allowed
* if the rent is to be reviewed in such a way that rent may decrease it must
be able to decrease as a result of the review and not only increase
* if the rent is to be reviewed to current market rent then that rent must be
calculated in accordance with the legislation
* if the new rent after exercising an option for renewal is to be the current
market rent then that rent must be calculated in accordance with the
legislation
* a tenant can ask for a determination of the current market rent before
exercising an option to renew the term of a lease
Outgoings
* the outgoings to be met by tenants must be specified in the disclosure
statement and lease
* landlords cannot seek contributions to capital building costs or
depreciation
* land tax can only be included as an outgoing if the land tax is payable
on the land on which the shop is located and the landlord is entitled to
the normal land tax concessions
* any sinking fund for maintenance or repairs must be kept in accordance
with the legislation
* estimates of outgoings must be given to the tenant 1 month before each
period outgoings are calculated
* a statement of outgoings expenditure must be made available to the
tenant twice a year
* an audited report on outgoings is to be provided within 3 months of the
end of each period outgoings are calculated
* an adjustment for contributions under or over paid is to be made within
1 month of the end of each period outgoings are calculated
Other Changes
* a payment to the landlord or agent by way of a premium or non-
refundable bond ("key money") is prohibited (maximum penalty
$ 10,000)
* any security deposit must be held by the landlord on behalf of the
tenants in an interest earning account and the interest credited to the
tenant
* a lease can provide that the tenant cannot sublease or mortgage the lease
* the lease must specify the nature, extent and timing of any
refurbishment that the tenant must carry out
* a landlord must give 2 months written notice of any alterations which
are likely to effect the tenant's business
* tenants are given extensive rights to claim compensation for
disturbance, for example, where access to the shop is limited, the
customer flow is altered, trading is disrupted, the lessor fails to stop a
disruption, fails to rectify a breakdown of plant or equipment or fails to
clean a retail shopping centre
* a tenant is entitled to 6 months written notice of termination for
demolition and may have a claim for compensation if demolition is
delayed
* the legislation provides for the reduction of rent if the shop is damaged
and in some cases the landlord or tenant will have a right to terminate
the lease
* the tenant is liable only for the reasonable legal costs of the landlord and
the landlord must furnish the tenant with an account payable by the
landlord in respect of those costs
* a landlord may recover a reasonable sum for the costs of preparation of
a lease from a person who enters into negotiations for a lease and then
withdraws
* the legislation imposes additional requirements on leases in retail
shopping centres, for example, in relation to advertising and
promotional levies and relocation
Disputes
* the Commercial Tribunal will hear retail tenancy claims involving
amounts of up to $ 250,000
* the Supreme Court of N.S.W. also has jurisdiction in some areas, for
example, ejectment.
* retail tenancy disputes may also be referred to the Registrar of Retail
Tenancy Disputes for mediation
Lease forms
* new lease forms will have to be drafted to take into account the effect of
the legislation
* the form the disclosure statement must take is set out in the legislation
* the Real Estate Institute provides to its members a standard form to use
* the Law Society of N.S.W. has drafted standard conditions for retail
leases that can be annexed to a lease form to comply with the legislation
Summary
* the legislation does nothing to simplify leasing
* the impact will be far reaching; fines may be imposed for non-
compliance; provisions of leases may be void or overridden by the
legislation; tenants are given rights to terminate leases and claim
compensation
* it will be some time before the Courts have an opportunity to interpret
the legislation
* leasing is complex and when considering leasing the advice of
professional persons such as a solicitor, real estate agent and accountant
should be sought
1 From Proverbs from Plymouth Pulpit by Henry Ward Beecher (1813-1887).
