Attention Retail Landlords and Tenants – Important Changes to the Retail Leases Act NSW to take effect from 1 July 2017
The Retail Leases Amendment (Review) Bill 2017 (NSW) was assented to earlier this year and the resulting changes to the Retail Leases Act 1994 (NSW) (Act) are due to commence on 1 July 2017.
There are a number of important changes to the Act including the following:
Lessor's disclosure statements:
Disclosure of outgoings: A tenant will not be liabile to pay outgoings unless those outgoings are disclosed in the lessor's disclosure statement. In respect of outgoings that are disclosed, a tenant may only be liable to pay the amount disclosed even though the actual amount of the outgoing is greater. The definition of "outgoings" will specifically include fees for services provided by the landlord in connection with the management, operation, management or repair of the retail shop building or land.
Amendments: A lessor's disclosure statement will be able to be amended if the parties agree in writing. The ability to amend a lessor's disclosure statement is particularly important bearing in mind the limitation on the tenant's liability for outgoings outlined above.
Right to compensation for tenant: A tenant will be entitled to compensation from the landlord where the tenant terminates the lease during the first 6 months as a result of the landlord giving the tenant a lessor's disclosure statement that is incomplete, false or misleading, or failing to give the tenant any statement at all. Compensation will be payable for costs reasonably incurred by the tenant in entering into the lease, including fit-out costs.
Change in format: There will be a new format for lessor's disclosure statements.
Removal of minimum 5 year term requirement: There will no longer be a requirement that retail leases have a minimum 5 year term. Accordingly, the certificate required to reduce the minimum term under the current section 16 of the Act (and which meant a tenant incurring legal costs) will no longer be required.
Timeframes for lease execution and registration: A landlord will be required to return the signed lease to the tenant within 3 months (rather than 1 month required under the current provision). A lease for a term of more than 3 years will need to be registered within 3 months after the executed lease is provided to the landlord by the tenant, unless there is delay in obtaining head lessor or mortgagee consent or requirements under the Real Property Act 1900 (NSW) outside of the landlord's reasonable control. A failure to do so will be an offence with a maximum penalty of $5,500.
Return of bank guarantees: A landlord will be required to return a tenant's bank guarantee to the tenant within 2 months after the tenant completes performance of its obligations under a lease. A failure to do so will be an offence with a maximum penalty of $5,500.
Mortgage consent expenses: A landlord will no longer be entitled to recover mortgagee consent expenses from a tenant.
Agreements to Lease: Agreements to lease will be specifically covered by the Act. Accordingly, the requirement to provide a lessor's disclosure statement also applies to agreements for lease. However, a further lessor's disclosure statement will not be required when the subsequent lease is entered into.
Procedure for seeking consent to assignment: The process for seeking consent to assignment will be clarified but not altered substantially. Where a retail shop lease has been awarded by public tender, the landlord will be entitled to refuse consent if the proposed assignee fails to meet any criteria of the tender.
Protection for assignor: To be released from future liability under a retail lease following assignment, a tenant will, in addition to the current requirements, need to provide an updated lessor's disclosure statement to the assignee at least 7 days before the assignment of the retail lease.
Operation of demolition provisions: The protections available to a landlord when a landlord terminates a lease on the grounds of a proposal to demolish the building of which a retail shop forms part will be extended to termination on the grounds of a proposal to demolish any part of the building. Furthermore, the term "demolition" will include repair, renovation and reconstruction. However, a landlord will only be entitled to terminate a lease on the grounds of a proposal to demolish where that proposed demolition cannot be carried out practicably without vacant possession of the retail shop.
Premises used for certain non-retail purposes excluded from the Act: Premises used for certain specified uses will be excluded from operation of the Act. Excluded uses will include ATMs, vending machines, public telephones, children's rides, signage display, internet booths, private post boxes and storage lockers. The Act will not apply to a retail shop that is a stall in a market unless that market is a "permanent retail market" (as defined in the Act).
Turnover rent and online transactions: Except where there is a sufficient connection with the retail shop (ie, the goods or services are delivered or provided from or at the retail shop or the retail shopping centre or the transaction takes place while the customer is at the retail shop), revenue from online transactions will be excluded from the calculation of turnover rent and a landlord will not be able to require a tenant to provide information that relates to the tenant's turnover from online transactions.
Jurisdiction of Tribunal: The monetary jurisdiction of the Tribunal will be increased from $400,000 to $750,000.
Penalty notices: There will be a new regime allowing the issue of penalty notices for offences against the Act.
If you would like to know more about the changes to the Act, or are looking to lease retail premises in NSW, then please contact our office.