What you need to know about changes to the Retail Leases Act now in effect

Insights24 July 2017

Changes to the Retail Leases Act 1994 (NSW) (RLA NSW) have come into force from 1 July 2017, following a quiet 13-year period without any amendments to the act.

Changes to the Retail Leases Act 1994 (NSW) (RLA NSW) have come into force from 1 July 2017, following a quiet 13-year period without any amendments to the act. Both landlords and tenants of retail premises in New South Wales will be impacted – here are some key changes they must know:

Lessor’s Disclosure Statements

We see the introduction of section 12A, which provides:

That a lessee is not liable to pay any amount to the lessor regarding any outgoings unless the liability to pay the amount was disclosed in the lessor’s disclosure statement for the lease.That where a cost estimate has been provided, and the estimated amount is less than the actual amount – if there was no reasonable basis for the estimate when the lessor’s disclosure statement was given, then the lessee’s liability for any payment will be determined on the estimate and not the actual amount.
That where a cost estimate has been provided, and the estimated amount is less than the actual amount – if there was no reasonable basis for the estimate when the lessor’s disclosure statement was given, then the lessee’s liability for any payment will be determined on the estimate and not the actual amount.

Section 12A(4) also includes a claw back provision where a lessee is entitled to recover any amount paid to the lessor that the lessee was not liable to pay because of this section.

This section does not apply to taxes, rates or levies that came into effect after the lessor’s disclosure statement was given and was not an outgoing of the lessor when the lessor’s disclosure statement was given. See section 12A(3).

Amendments to Lessor’s Disclosure Statement

Under section 11(6) a lessor’s disclosure statement may be amended if the parties agree in writing before or after the lease is entered into. This is an important clarification not previously included since the Disclosure Statement must be provided at least seven days before the retail shop lease is entered into.

Compensation where Tenant terminates due to Disclosure Statement being incomplete, false or misleading or not provided

Under clause 11(2A) a tenant will be entitled to compensation from the landlord where the tenant terminates the lease during the first six months if the landlord gives the tenant an incomplete, false or misleading lessor’s disclosure statement, or fails to give the tenant any statement at all. Landlords must realise compensation for costs reasonably incurred by the tenant from entering into the lease will also be payable, including compensation for expenditure on the retail shop’s fit out.

Previously, the tenant could terminate the Lease but had no additional right to claim compensation.

Definition of outgoings

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. This potentially broadens the scope of outgoings the landlord can claim.

Change in format

Please check the new forms and the new Retail Tenant’s Guide published on the NSW Small Business Commissioner web site. Landlords should review their standard form Disclosure Statements against the new forms and the requirements of Schedule 2.

Farewell to minimum five year term requirement

There will no longer be a requirement that retail leases have a minimum five year term. Accordingly, the certificate required to reduce the minimum term under the current section 16 of the Act will no longer be required (the consequences of failing to obtain such a certificate have also been deleted).

Time frames for lease execution and registration

Under section 15(1) a landlord will be required to return the signed lease to the tenant within three months of the date it is returned to the Lessor’s lawyer (rather than one month required under the previous provision).

Under sections 16(1) and (2) a lease for a term of more than three years will need to be registered within three 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

Under new section 16BA, a landlord will be required to return a tenant’s bank guarantee to the tenant within two months after the tenant completes its obligations under a lease. Failure to do so will be an offence with a maximum penalty of $5,500. Under section 16BA(5) a landlord is liable to pay the lessee compensation for:

any loss or damage suffered by the tenant as a result of any failure by the landlord to return a bank guarantee in compliance with this section and
reasonable costs incurred by the lessee in connection with the cancellation of a bank guarantee because the landlord was unable to return the original bank guarantee in accordance with this section.

A landlord will no longer be entitled to recover mortgagee consent expenses from a tenant. See definition of lease preparation expenses in section 3.

Agreements to Lease

A clarification has been made by way of section 3B to provide that Agreements for Leases are now specifically covered by the Act. Accordingly, a landlord must ensure that it provides the tenant with a lessor’s disclosure statement at least seven days before the agreement for lease is entered into. Failure to do so gives the tenant a right to terminate within the first six months.

Additionally, a further lessor’s disclosure statement will not be required when the subsequent lease is entered into.

Assignment Procedures

New section 41 and 41A have been included relating to the procedure for obtaining consent to assignment of leases.

When a tenant is seeking consent to assign its lease to an assignee, the tenant is now required to prepare its own updated lessor’s disclosure statement which it must complete to the best of its knowledge.

Previously, if the landlord failed to provide copy of the disclosure statement within 14 days, the tenant was relieved from its obligations to provide an updated disclosure statement to the assignee. This is no longer the case.

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 seven days before the assignment of the retail lease: section 41A(2).

An additional reason to withhold consent to assignment has also been included. Where a retail shop lease has been awarded by public tender, a landlord will be entitled to withhold its consent to an assignment if the assignee fails to meet the criteria of the tender. See section 39(1)(e).

Demolition

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 which is a significant change. 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. See amendments to section 35.

Excluded Premises

Premises used wholly for certain non-retail purposes will be excluded from the scope of the RLA NSW, including ATMs, communication towers, digital display screens, vending machines, public telephones, children’s rides, internet booths, public tables and seating, private post boxes, and storage lockers.

Under section 6B 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). This will solve a number of complexities associated with pop up or temporary markets that have long term stallholders.

Turnover rent and online transactions

Except where there is a sufficient connection with the retail shop (i.e., 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; see section 20.

Jurisdiction of Tribunal

Before 1 July 2017 the NSW Civil and Administrative Tribunal (NCAT) had jurisdiction for claims up to $400,000, but this has been increased to $750,000 on and from 1 July.

What to do now?

Most of these significant amendments commence from 1 July 2017 and do not operate retrospectively.

Review your lease templates and disclosure statement templates
Use the new Retail Tenant’s Guide 2017
Review any leasing manuals and procedures to ensure compliance and
Implement practices for appropriate management of bank guarantees and return of bank guarantees by the required date to avoid paying compensation for late release.