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Owner's disclosure obligations when extending the term of a lease
Question: When the term of a lease is being extended by agreement (rather than upon the exercise by the tenant of an option to renew), is the Owner required to give the tenant a disclosure statement under the Retail Shop Leases Act (Act)?
Answer: Yes.
Why? We consider that the extension of the term of a lease is effectively the grant of a fresh lease because 'lease' is defined in the Act to mean 'an agreement under which a person gives or agrees to give to someone else for valuable consideration a right to occupy premises'' When a lease is granted it is for a specified term. It follows that any further term granted must be for a fresh lease.
The details in the disclosure statement should reflect the lease as it will be amended. That is, the commencement date should be the commencement date of the original term and the expiry date should be the new expiry date.
Answer: Yes.
Why? We consider that the extension of the term of a lease is effectively the grant of a fresh lease because 'lease' is defined in the Act to mean 'an agreement under which a person gives or agrees to give to someone else for valuable consideration a right to occupy premises'' When a lease is granted it is for a specified term. It follows that any further term granted must be for a fresh lease.
How do I give disclosure in this situation?
Section 22 of the Act requires the Owner to give the tenant a disclosure statement and a draft lease at least 7 days before the tenant enters into the lease. A tenant 'enters into' a lease on the earlier of the date:- it takes possession (or in this case continues in possession); and
- it signs the lease.
The details in the disclosure statement should reflect the lease as it will be amended. That is, the commencement date should be the commencement date of the original term and the expiry date should be the new expiry date.
What could happen if I don't give disclosure?
If the Owner fails to give the tenant a disclosure statement or gives the tenant a defective statement then the tenant is entitled to terminate the lease within 6 months after the tenant enters into the lease. In addition, the Owner is liable to pay the tenant reasonable compensation for loss or damage suffered by the tenant.When don't I have to give disclosure?
An Owner's disclosure obligations under the Act do not apply to:- leases where the term (including any option) is 6 months or less; and
- leases granted when the tenant exercises an option to renew.