On 25 June 2014, the Senate referred the question of the need for a national approach to retail leasing arrangements to the Economics References Committee for inquiry and report. The Committee released its report on 18 March 2015.

In this alert,  Partner Catherine Wheeler and Law Graduate Kimberley Truong present the Committee’s findings and recommendations and highlight some of the issues which the Committee considered.

Background

Retail tenancy leases in Australia are currently governed by different legislation and regulations in each state and territory.  There is no specific retail tenancy legislation at Commonwealth level.

The Economics References Committee was to consider whether a national approach would create a fairer system and reduce the burden on small to medium businesses with associated benefits to landlords.

Particular reference was to be had to a tenant’s first right of refusal to renew a lease, dispute resolution processes, rent adjustment, implications of statutory rent thresholds, bank guarantees, the need for a national lease register, incentive disclosure, provision of sales results, contractual obligations relating to store fit-outs and any related matters.

Committee Findings and Recommendations

Whilst the Committee recognised there is scope for harmonisation of retail leasing laws across Australia, it noted that the power to legislate with respect to retail leasing arrangements lies with the states and territories.

Rather than recommending the imposition of an entirely new national system of retail leasing, the Committee preferred a coordinated approach between the states and territories with the assistance of the Commonwealth.

The Committee recommended actions that the government should take:

  • Small Business Commissioners – support existing or establish Small Business Commissioners in each state or territory (they already exist in Victoria, NSW, WA and SA).

  • National Disclosure Statement - re-establish the National Retail Tenancy Working Group to develop a National Disclosure Statement.

  • Through a COAG leadership role – encourage states and territories to move towards a harmonised approach.

The Review

The Committee received 28 submissions. A number of submissions supported the implementation of a national regulatory framework on the basis (among other things) that a move towards a more consistent retail leasing system would benefit landlords and tenants operating in multiple jurisdictions.  Others favoured such an approach for small retailers but not large retailers.

It was argued that streamlining retail leasing arrangements in Australia might relieve many of the inefficiencies in the current system associated with delay, costs, frustration and legislative discrepancies.

However the Committee also found there was resistance to change.   There was concern about the time it would take to successfully implement a national regulatory structure for retail leasing across Australia.

Fears were also expressed through submissions that a national retail leasing system would likely create a larger burden and increase costs for small to medium sized businesses.

After considering all the submissions, the Committee concluded that there is scope for harmonisation of retail leasing laws across Australia and the need for the federal government to take a leadership role.

The Committee encouraged the Minister for Small Business through the Council of Australian Governments (COAG) to work in tandem with the respective states and territories towards a fairer system regulating retail leasing in Australia.

Dissenting Report by Senator Nick Xenophon

Senator Nick Xenophon, a member of the Committee, expressed disappointment that the Committee failed to express a view on the majority of the matters explored during the inquiry. 

In his view, the federal government should develop model legislation incorporating the best practices from each state.

In his dissenting report, Senator Xenophon urged the need for a comprehensive package of reforms   affording reasonable protection to small business in order to give small business the confidence to enter into long term leasing arrangements.  The result, he claims, would be to stimulate the commercial retail leasing market.

Mr Xenophon’s recommendations included that:

  • Rights of renewal be enshrined on a national basis, using the Tasmanian Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 as a template which allows landlords and tenants to either agree the new rent on a renewed term or have it set by an independent valuer.

  • An industry code of conduct in respect of fair and cost efficient dispute resolution be implemented, to be managed by the ACCC.

  • Ratchet clauses be excluded unless expressly agreed to by the tenant.

  • Bank guarantees be limited to 28 days.

  • A national lease register be implemented with landlords to disclose commercial terms (including incentives) on a standard form.

  • A code of practice be implemented that incorporates the broad reporting of sales and occupancy costs with tenants only being required to provide general increase and decrease information (rather than the actual amounts).The code should prohibit specific commercial-in-confidence sales and occupancy data being provided to landlords.

  • The cost of fit-outs be a factor in determining the length of the lease.

Watch this space

This is not the first inquiry which considers the fairness of the retail tenancy legislation, nor is it unlikely to be the last.

There have been three parliamentary inquiries into retail tenancy legislation at both State and Commonwealth levels, and three reports by the Productivity Commission in the last decade alone which consider retail tenancy leases. 

Queensland recently and New South Wales and South Australia currently are reviewing legislation governing retail leases in their respective jurisdictions.

Although varying levels of support are reflected in the Senate Report, the Committee is of the view that there is scope for harmonisation of retail leasing arrangements in Australia.

Whether a harmonised approach is ultimately adopted, and whether implementation will actually result in a fairer system which reduces the burden on small to medium business (with associated benefits to landlords), remains to be seen.