Important Changes to Retail Shop Leasing in Qld – What You Need to Know8 February 2016 | General
On 26 November, the Retail Shop Leases Amendment Bill 2014 (Bill) was introduced by the Attorney-General, Jarrod Bleijie MP. The Bill provides for a large number of amendments to the Retail Shop Leases Act, 1994 (Act). A summary of the more significant amendments is set out below:
- The definition of outgoings will specifically exclude any excess paid by a lessor in relation to an insurance claim.
- For retail shopping centres, outgoings estimates and audited statements will be required to break down total management fees into administration costs to run the centre and any other fees paid to the manager of the centre.
- If a lessor fails to give an outgoings estimate or audited statement then the lessee may withhold payment of outgoings until the estimate or audited statement is given.
- For the purposes of apportioning outgoings, the total area of a shopping centre will now exclude parts of the common areas which are leased or licensed for:
- information, entertainment, community or leisure facilities;
- telecommunications equipment;
- vending machines;
- advertising displays;
- seating, tables and other furniture;
- trade out areas;
- storage; and
2. Retail shopping centre
- The definition of retail shopping centre will exclude the following areas:
- a level of a building which has no retail businesses; and
- a stand-alone building which has no retail businesses.
3. When is a lease entered into?
- A lease will be regarded as having been ‘entered into’ on the earliest of the date that:
- the lease is signed by all of the parties;
- the lessee takes possession of the shop under the lease; and
- the lessee first pays rent (other than a deposit paid to secure the shop) under the lease.
4. What leases does the Act apply to?
- This is the most complex and confusing part of the Bill.
- Generally speaking, the Act will apply to all leases which are entered into or renewed at any time.
- However, there are some parts of the Act which will not apply in certain circumstances depending upon the nature of the lease and when the lease was entered into or renewed.
- If premises become a retail shop after the lease commences then the Act will not apply to the lease, an assignment of the lease or a renewal under an option.
- Conversely, if premises cease to be a retail shop after the lease commences then the Act continues to apply to the lease, an assignment of the lease or a renewal under an option.
- A new definition of ‘government lease’ will be introduced which refers to leases where the lessee is a local, state or the federal government. For those leases:
- there is no obligation upon the lessee to give the lessor a lessee disclosure statement, legal or financial advice report; and
- there is no obligation upon the lessor to give the lessee a notice under section 46 relating to when the lessee’s option window closes.
- The definition of retail shop lease is to be amended to specifically exclude leases/licences for:
- premises which have an area greater than 1,000 square metres (regardless of the identity of the lessee);
- ATMs; and
- vending machines.
5. Contracting out of the Act
- The prohibition regarding contracting out of the Act will be extended to cover other agreements entered into for a retail shop lease – e.g. side deeds.
6. Changes to Disclosure
Waiver of disclosure period
- A lessee may now give a notice waiving the 7 day disclosure period if, before the lessee enters into the lease:
- the lessor gives the lessee a disclosure statement; and
- the lessee gives the lessor a waiver notice and, if the lessee is not a major lessee, a legal advice report which specifically states that advice has been given to the lessee about the meaning and effect of the waiver.
- If a lessee intends to grant a sublease or franchise licence then the lessee may ask the lessor for an updated disclosure statement and the lessor must respond within 28 days.
- The lessee must pay the lessor’s reasonable costs to prepare the updated disclosure statement.
- A lessor must give a lessee an updated disclosure statement within 7 days after the lessor receives notice of the lessee’s exercise of an option. This obligation upon the lessor may be waived by the lessee when it exercises the option.
- A lessee may, within 14 days after receiving an updated disclosure statement from a lessor, withdraw its notice exercising its option.
Lessor’s failure to comply with its disclosure obligations
- The ability of a lessee to terminate the lease within 6 months and claim compensation from the lessor where the lessor fails to give a disclosure statement on time or gives a defective disclosure statement will now apply when a lessee exercises an option to renew.
- If the lessee gives a notice terminating a lease for a defective disclosure statement then the lessor may now give a notice objecting to the lessee’s termination on the same grounds as currently exist in the Act.
- If the lessee does not accept the lessor’s objection notice then the lessee has 14 days to give a notice to the lessor. If the lessee fails to give that notice then the lessee is deemed to have accepted the lessor’s objection notice and the lease will remain on foot.
- If the lessee gives a notice that it does not accept the lessor’s objection notice then the dispute resolution provisions of the Act will apply. If QCAT finds in favour of the lessor then the lease will remain on foot.
- A lessee will now be required to give the lessor a disclosure statement at least 7 days before the lessee enters into the lease.
- An assignor will now be required to give an assignee an assignor disclosure statement at least 7 days before the earlier of:
- the day the assignee enters into the sale contract for the business; and
- the day that the lessor is asked to consent to the assignment.
- An assignee may now give a notice waiving the 7 day disclosure period if, before the assignee enters into the assignment:
- the lessor gives the assignee a disclosure statement; and
- the assignee gives the lessor a waiver notice and, if the assignee is not a major lessee, a legal advice report which specifically states that advice has been given to the assignee about the meaning and effect of the waiver.
- An assignee must now give a disclosure statement to the lessor at least 7 days before the assignee enters into the assignment.
7. Market rent reviews
- When the lessee triggers an early market rent review before exercising its option to renew, the ‘window’ for the lessee to exercise its option will now close 21 days after the market rent is agreed or determined.
- An appointed specialist retail valuer must now nominate timeframes (which must not be less than 14 days) for the lessor and the lessee to make submissions and respond to each other’s submissions.
- If the lessor or the lessee fail to make a submission or respond on time then they will be regarded as not having made a submission or given a response.
- Where a lessee must contribute to a promotions fund, the lessor will now be required to make available to the lessee a marketing plan that details the lessor’s proposed spending on advertising and promotion for an accounting period at least 1 month before the accounting period commences.
- An example of how to make the marketing plan available is to publish it on the lessor’s website.
- The lessor will now be required to make available to a lessee an audited statement of the lessor’s expenditure for promotions within 3 months after the end of the relevant accounting period.
- Any unspent promotions funds must now be carried forward to the next accounting period.
- The application of the compensation provisions will be amended to make it clear that they do apply to a lessee who is holding over following the expiry of a lease.
- Where a lessee is claiming compensation for disturbance from the lessor, the lessee must give the lessor notice of the loss or damage asap after it is suffered and the lessee’s failure to do so is to be taken into account in deciding the amount of any compensation payable.
- A lessor will no longer be liable to pay a lessee compensation for loss or damage if the lessor takes action:
- as a reasonable response to an emergency; or
- in compliance with any duty imposed by law or any relevant authority.
- It will now be possible for a lessor to include in a lease a provision which limits a claim for compensation by a lessee for an anticipated disturbance that is to occur within 1 year from the date that the lease is entered into. For the provision to be valid, the lessor must give the lessee a notice which includes:
- a specific description of the nature of the anticipated disturbance;
- a statement assessing the likelihood of the anticipated disturbance occurring including an indication of the basis on which the assessment was reached; and
- a statement of the timing, duration and effect of the anticipated disturbance so far as they may be predicted.
- The relocation regime set out in the Act will now apply to all relocations for whatever reason.
- Where the premises are within a retail shopping centre then the lessor will now be restricted to moving the lessee’s business to alternative premises within that centre.
- If the lessee does not wish to be relocated and instead wishes to terminate the lease then the lessee will now be required to give the lessor at least 1 month’s notice of the earlier termination (previously only 7 days’ notice was required).
11. Lessor’s ability to pass on costs to lessee
- A lessor will now be prevented from passing on to the lessee its costs relating to:
- obtaining mortgagee’s consent to the lease; and
- complying with the Act.
- However, if a lessee fails to sign a final version of the lease then the lessor may pass on to the lessee the lessor’s reasonable legal and other expenses incurred.
12. Release on assignment
- Both a lessee and its guarantors will now be released upon an assignment regardless of whether disclosure has been given by the relevant parties to the assignment.
- A clause in a lease which requires the lessee to refurbish the premises will now be void unless the clause gives general details of the nature, extent and timing of the refurbishment that is required.
- Many of the monetary penalties for breaching the Act will be omitted.
- Rather than imposing a penalty, the relevant obligation which contravenes the Act will simply be void.
15. Transitional rules
- For previous amendments to the Act, the ‘status quo’ for existing leases has generally been maintained. However, this will not necessarily be the case for the amendments proposed by the Bill.
- There are new comprehensive transitional arrangements which provide that some of the changes will apply to existing leases whilst others will only apply to leases entered into after the Bill becomes law.
- Consequently, it is recommended that specific care be taken when reviewing existing leases to determine whether the amendments apply or not.
The Bill has been referred to a parliamentary committee which is to report back by 2 February 2015. Consequently, it is not expected that the amendments to the Act will become law before mid February 2015.
For a copy of the Bill from the Office of Queensland Parliamentary Counsel website, please click here.