New legislation has been introduced into the Queensland Parliament that will make significant amendments to a number of the provisions of the existing legislation governing retail shop leases in Queensland. Partner John Beckinsale and Special Counsel Christine Adamson report on the major changes.
In accordance with the provisions of the Retail Shop Leases Act (the Act), a statutory review of the operation of the Act was required to be conducted. The Retail Shop Leases Amendment Bill 2014 (the Bill) is the result of considerable stakeholder consultation conducted in the review of the Act. Significantly, the Act itself comprises approximately 84 pages and the Bill comprises 55 pages, indicating the significant nature of the amendments. Given the numerous proposed amendments, this alert only deals with the most significant proposed changes.
The Bill focuses on the following:
- excluding certain leases from the Act's operation;
- clarifying the disclosure provisions;
- enhancing tenant protection;
- including provisions which benefit landlords;
- simplifying procedural requirements.
There is still no minimum term for retail shop leases in Queensland, unlike the other jurisdictions or preferential rights, which is good news for landlords of retail properties in Queensland.
We discuss the main amendments below.
Leases excluded from the Act's operation
- The existing Act provides that leases of more than 1000m2 are excluded from the Act's operation only if the tenant is a listed corporation or a listed corporation's subsidiary. The Bill extends this exclusion to all leases with a floor area greater than 1000m2, ie there is no longer a listed corporation requirement. This is on the basis that tenants of such areas are effectively sophisticated parties and do not require the protection of the Act.
- In regard to the retail shopping centre test, premises on the level of a building where none of the other premises on that level are used for a retail business, are excluded; and in a standalone building, if none of the premises in the building are used for retail businesses (a non-retail precinct), they are also excluded. This will assist shopping centres where there is a separate commercial/office floor(s).
- The Bill clarifies that automatic teller machines, vending machines and advertisement displays are excluded for the purposes of the Act.
Enhanced tenant protection
- Landlords are required to give a disclosure statement to an existing tenant within seven days after the landlord receives the tenant's notice exercising that option. Within 14 days of receiving the disclosure statement, the tenant may (whether or not the renewed lease period has commenced) give the landlord a written notice withdrawing the renewal. The tenant is not required to give any reason for the withdrawal.
- The tenant may terminate a retail shop lease by giving written notice to the landlord within six months after the tenant enters into the renewed lease if the landlord does not give a disclosure statement (or gives a defective statement). This has always been the case. However, there is an objection procedure the landlord can follow if it wants to oppose the purported termination.
- A tenant is only required to refurbish premises during the lease term where the lease gives sufficient details of the nature, extent and timing of the required refurbishment.
- A landlord's annual estimate and audited statement of outgoings must include a breakdown of the estimated fees to be paid by the lessee towards the administration costs of running the centre and any other fees to be paid to a centre management entity. If a landlord does not provide the estimate and audit, a tenant may withhold outgoings payments until it does.
- If the lease requires the tenant to pay for promotion and advertising, at least one month before the start of each accounting period, the landlord must make available to the tenant a marketing plan giving details of the proposed promotion and advertising expenditure. This requirement can be satisfied if the plan is published on a landlord's website that is accessible to the tenant. The landlord must also provide to the tenant an audited statement of the landlord's expenditure on promotion amounts.
- On an assignment of a retail shop lease, both the assignor and the guarantor of the assignor are now released from liability due to the default of the assignee without any requirement for the parties to have complied with disclosure obligations – it is now an unconditional release.
- A landlord is liable for mortgagee consent costs. However, a prospective tenant is liable for the landlord's reasonable legal and other expenses for the preparation of a final lease if the tenant gives a notice agreeing to the preparation of the final lease and does not sign it. To trigger the payment of the costs, the prospective tenant must give a written notice to prepare a final lease and the final lease is prepared.
Amendments benefitting landlords
- The changes do not apply to leases with a floor area greater than 1000m2 and leases in a non-retail precinct (the schedule dictionary of the Act (1000m2) and section 8 (non-retail precinct)).
- Clarification that the landlord disclosure statement is a defective statement if it:
- is incomplete in a material particular; or
- contains information that is false or misleading in a material particular.
- Significantly, a disclosure statement is not a defective statement merely because:
- it omits information that is irrelevant to the lease; or
- its layout does not comply with that of the approved form
- There is a general clarification of the compensation provisions. In particular, under s43(1) (eg substantially restricts the tenant's access to the leased shop, takes action that substantially restricts or alters access by customers to the leased shop etc) a landlord is not liable to pay compensation for loss or damage suffered because the landlord takes action:
- as a reasonable response to an emergency; or
- acts in compliance with a statutory duty;
- A similar procedure as exists in NSW has been adopted allowing landlords to limit compensation in certain circumstances for development that occurs in the first year of the lease if the tenant has been given notice of the anticipated disturbance.
- Clarification that a tenant is not liable for 'double dips' of compensation under ss 43, 46G (relocation costs) or s46K (reasonable compensation).
- There is clarification of areas excluded for the purposes of apportioning a landlord's outgoings. In particular, apportionable outgoings for a retail shop lease include promotional amounts and maintenance amounts to the extent that the amounts are treated as part of the landlord's outgoings. However, such outgoings must exclude, from the total area of the shopping centre taken into account in determining apportionable outgoings, areas within a common area of the centre used for a prescribed purpose. Prescribed purpose includes information, entertainment, community or leisure facilities, telecommunication equipment, automatic teller machines etc.
- The general restrictions on rent review (including only being able to review rent on a single basis, not more than once in each year etc) can effectively be waived by a major lessee (re leases more than five retail shops in Australia) by simply giving a notice to that effect before the lease is entered into. This applies without the need for that notice to state that the major lessee has received appropriate financial and legal advice about the lease, it being recognised that major lessees are sophisticated tenants and can make their own decisions about obtaining such advice.
The Bill must be referred to the Legal Affairs and Community Safety Committee for review and may be the subject of another public consultation process. At this stage it is not known when the Bill will become law. Landlords should carefully review the Bill so that they have the appropriate systems in place to deal with the amended processes once the Bill commences.