Changes to Retail Shop Leasing Bill in Queensland

Changes to Retail Shop Leasing Bill in Queensland

Changes to Retail Shop Leasing Bill in Queensland

 

Background

On 10 May 2016 the Retail Shop Leases Amendment Bill 2015 (‘the Bill’) was passed by the Queensland parliament. Coming in at 60 pages, the Bill is going to have a significant impact upon both lessors and lessees involved in retail shop leasing in Queensland and will significantly amend the Retail Shop Leases Act 1994 (‘the Act’). These amendments to the Act will be effective as of 25 November 2016.

While the Bill does not constitute a major review of the processes underpinning retail leasing or an overhaul of the current Act, it does provide for a significant number of amendments.

Given the size of the Bill, this article only covers the most significant changes and not the full breadth of the amendments contained in the Bill. The Bill will alter a number of rights and obligations for both lessors and lessees, and parties should seek legal advice to ensure their agreement complies with the Act after the commencement of the Bill.

 

Scope and Definitions

The definition of a retail shop lease has been altered under the Bill to exclude all shops with a floor size greater than 1,000m2 regardless of the type of lessee, whereas currently only listed corporations or their subsidiaries who lease premises of greater than 1,000m2 are excluded.

The following are no longer considered retail shop leases:

  1. Premises wholly or predominately where the lessee carries on a business in their capacity as either agent or employee of the lessor – this captures premises such as centre management offices;
  2. Areas leased within common areas for ATM’s and telling machines; and
  3. Some non-retail businesses where 25% or less of the total lettable area of level (in a multi-level centre) or 25% of the total lettable area of the building (in a single level building) are used wholly or predominately for carrying on retail businesses.

 

Disclosure requirements

A retail shop lease will be entered into when:

  1. the lease is signed by all parties;
  2. the lessee enters into possession of the premises; and
  3. the lessee first pays rent under the lease (not including a deposit).

This change is important as the date the lease is entered into will determine whether the disclosure requirements have been complied with. The requirement for a lessor to provide the draft lease and the disclosure statement at least 7 days before a lease is entered into has not changed and failure to comply can still result in the lease being terminated by the lessee.

However, a lessee can now provide a waiver notice which will result in the lessor not needing to provide a current disclosure statement at least 7 days before entering into the lease. The disclosure statement will still need to be provided before entering into the lease.

The requirement to provide a draft lease at least 7 days before entering into the lease has not changed and cannot be waived under any circumstances.

 

Financial

Most significant of the financial amendments, a lessee is not liable for outgoings unless the lease specifies:

  1. the outgoings for which the lessee is responsible;
  2. how the outgoings will be calculated;
  3. how the outgoings will be apportioned to the lessee; and
  4. how the lessor may recover the outgoings.

For a retail shopping centre, outgoing estimates need to provide a detailed breakdown of the administration costs of running the retail shopping centre and the fees to be paid to any centre management entity. Until the estimate or audited statement is provided, a lessee is not entitled to pay outgoings.

Where a lessee pays turnover rent, they are no longer required under the Act to provide monthly turnover certificates and an annual audited statement of turnover. Therefore, if the lessee has agreed to provide these documents, it must be written in the lease to be enforceable.

Lessors are no longer able to pass on costs to the lessee for obtaining mortgagees consent to the lease.

The excess of a claim under an insurance policy of the lessor is no longer recoverable from a lessee.

In circumstances where parties negotiate the terms of a lease but the lessee pulls out after the final lease has been prepared (but not signed), then the lessor may be able to invoice the lessee for the lessor’s costs for preparing the final lease.

 

Compensation

Compensation for business interruption by the lessor can no longer be claimed in circumstances where the lessor is responding to an emergency situation or complying with a statutory duty.

The amount of compensation available to a lessee under a retail shop lease for a business disturbance may be limited in circumstances where, prior to entering into the lease, the lessor gave the lessee written notice of the potential disturbance. This will only apply if the business disturbance occurs in the first year of the lease.

The amount of compensation payable to a lessee by a lessor for loss or damage may be reduced where the lessee does not give written notice as soon as possible after the loss or damage is suffered. The right of the lessee to compensation isn’t affected.

Lessees are no longer able to claim compensation from a lessor under business interruption grounds where demolition or relocation costs are also claimed from the lessor.

Compensation provisions in the Act will also apply to holding over periodic tenancies.

 

Option exercise

The process for exercising an option has been substantially altered. A lessor must provide a current disclosure statement to the lessee within 7 days of the exercise of an option, unless the lessee waives the requirement.

Within 14 days of receiving the current disclosure statement, the lessee has the option to withdraw its notice exercising the option.

Failure to provide a disclosure statement where it is required gives the lessee the right to terminate the lease within the first 6 months of the option, just as if it were a brand new lease.

 

Lease assignment

The time-frames for a lessee to provide a copy of the lease and a disclosure statement to an assignee have been changed. A tenant must now provide these documents at least 7 days before the agreement for the business sale is entered into or the day the lessor is asked to consent to the assignment, whichever is earliest. The assignee can waive the 7 day requirement, however the documents must still be provided before the earlier of the two dates mentioned above. The changes are intended to reduce waiting times during business sales while the assignee reviews the lease and satisfies the lessor’s requirements for assignment, which often results in significant delays and increased legal costs.

Where a lease is assigned, the lessee’s guarantor is also to be released from any liability under the lease arising from a default by the assignee, provided the lessee complied with its disclosure obligations to the assignee and the disclosure statement had no defective statements.

 

Miscellaneous

If a lessor requires promotion or marketing levies to be paid by the lessee, then the lessor must provide an annual marketing plan at least one month prior to the start of each accounting period. The plan must include details of the lessor’s proposed spending on promotions and advertising.

Where a lessor requires the lessee to refurbish or refit the premises, the details of such refurbishment must be included in the lease. The details required are the nature, extent and timing of the refurbishment or refitting. Failure to comply with this requirement will result in the provision being unenforceable.

 

Ensuring your compliance

Given the number of changes introduced by the Bill, lessors should ensure their standard lease templates, disclosures, outgoings statements and marketing plans are updated to reflect the amendments and remain compliant with the Act.

This article is only a summary of the major amendments and is not legal advice. Given the highly technical nature of the retail shop leasing legislation, you should seek legal advice if you believe any of the information provided will have an effect on your retail shop lease.

If you have any queries or require your lease documents amended to comply with the amended Act, please contact our Commercial team at commercial@hatzis.com.au or call 1300 HATZIS (1300 428 947) to discuss how we can best assist you.

Comments are closed.