The Queensland Parliament has recently introduced new legislation that will make significant changes to the existing law in relation to retail shop leases in Queensland, if passed.
The Retail Shop Leases Amendment Bill 2015 (Qld) (Bill) is the culmination of a lengthy statutory review process for the Retail Shop Leases Act 1994 (Qld) (RSLA), with that review undergoing various phases since 2011 under the two previous State Governments.
Landlords, tenants and letting agents for retail premises should be aware of and consider the impact of the proposed changes, to ensure readiness to implement them, once the legislation is enacted.
The Bill was introduced into the Queensland Parliament on 13 October 2015, and has been referred to the Education, Tourism and Small Business Committee (Committee) for further consideration. The Bill provides for a range of amendments to the RSLA.
A Committee report is to be tabled following a public consultation process on 5 February 2016.
At this stage, it is not known when the amendments are intended to commence, and it will no doubt be clearer following conclusion of the Committee enquiry process whether there are likely to be any amendments to the Bill.
Following the recent closing date for public submissions on 24th November 2015, it appears from the Queensland Parliament website1 in relation to the Committee enquiry that a total of 6 submissions have been received in response to the Bill, and at this stage, it does not appear that any public hearings are proposed. However, it is noted that the current Bill has resulted from quite extensive consultation with industry and the public, via previous reports, options papers, submissions and a previous amending bill in 2014, which the current Government has replaced with the present Bill.
At the time of writing, it is not known whether the State Government, having minority government status, has the support of the cross-bench Members of Parliament to get the Bill passed.
The Bill proposes a wide range of changes to the RSLA, with a focus on the following:
- Excluding certain leases from the operation of the RSLA, where their application cannot be justified;
- Clarifying the application of the disclosure provisions in the RSLA;
- Enhancing protection for tenants, including prospective buyers of retail businesses, and providing for the release from liability for assignors and their guarantors on an assignment of lease, where the assignor has complied with its disclosure obligation;
- Providing for exclusions from the landlord’s liability for compensation to the lessee for business disruption in certain circumstances;
- Providing for liability as to certain legal costs related to a retail shop lease;
- Simplifying procedural requirements by:
- providing flexibility for the tenant to waive the lessor disclosure period; and
- excluding unnecessary procedural requirements where the State, the Commonwealth or a local government is a tenant of premises situated in a retail shopping centre;
- Clarifying the current market rent determination process provided for under the RSLA;
- Clarifying excluded areas for the purposes of apportioning landlords’ outgoings; and
- Clarifying the accounting and reporting obligations by landlords to tenants for promotion/advertising and sinking fund contributions.
Exclusion of certain leases from the operation of the RSLA
The Bill provides that the RSLA does not apply to leases of the following:
- Non-retail leases in an area of a shopping centre regarded or identified as commercial or for non-retail service providers. The RSLA would therefore not apply to leases of premises located in a retail shopping centre if they are not used wholly or predominantly for carrying on a retail business and at the time the lease is entered into either:
- the retail area of the level is 25% or less of the total lettable area of the level, if the premises are located on a level of a multi – level building; or
- the retail area of the building is 25% or less of the total lettable area of the building, if the premises are located in a single level building.
- A retail shop with a floor area of more than 1,000 m2; and
- Premises used wholly or predominantly for the carrying on of a business by a tenant for a landlord, as the landlord’s employee or agent.
The Bill also clarifies that the RSLA will not apply to premises within a common area of a retail shopping centre if they are used for an automatic teller machine or vending machine.
Changes benefitting tenants
The Bill proposes a number of changes that enhance protection for tenants and prospective buyers of retail businesses, including the following:
- Although landlords are still required to provide disclosure to tenants before a tenant enters into a lease, tenants can now waive the disclosure period, should they wish to do so; and
- Requiring the landlord to provide a Lessor Disclosure Statement to an existing tenant, within seven days of receiving the renewing tenant’s notice exercising an option of renewal under a lease.
The renewing tenant can give the landlord a notice to advise that its notice exercising the option is withdrawn within 14 days of receiving a current Lessor Disclosure Statement from the landlord.
- Facilitating appropriate disclosure to franchisees and sub-tenants. Under the Bill, landlords would be required to provide a Lessor Disclosure Statement within 28 days, where requested by:
- a franchisor who is a tenant of a leased shop, where the franchisor proposes to grant a franchisee a licence or similar contractual right to occupy and use all or part of the leased shop wholly or predominantly for the carrying on of a retail business; or
- a tenant who proposes to sub-lease the premises.
The reasonable costs incurred by the landlord for preparation of a Lessor Disclosure Statement in the above circumstances would be payable by the franchisor or prospective sublessor.
- Ensuring that a tenant is only liable to refurbish the leased shop during the lease term where the lease gives sufficient details of the nature, extent and timing of the required refurbishment;
- Requiring a landlord’s annual estimate and audited statement of outgoings to provide a breakdown of centre management fees;
- Requiring the landlord to make available to the tenant a marketing plan detailing the landlord’s proposed advertising/promotion expenditure;
- Providing for the release of the assignor tenant to include the assignor lessee’s guarantors if the assignor has complied with its disclosure obligations or any QCAT order that its Assignor Disclosure Statement be given, and the Assignor’s Disclosure Statement is not a defective statement;
- Removing the requirement for a tenant under a turnover lease to give the landlord monthly turnover certificates and an annual audited statement of turnover; and
- Requiring the landlord to be responsible for mortgagee consent costs.
Changes benefitting landlords
Some of the proposed amendments to the RSLA that benefit landlords, include the following:
- Clarification that that RSLA does not apply to certain leases, as noted above;
- The Bill clarifies that a disclosure statement is not a ‘defective statement’ merely because it omits information that is irrelevant to the lease, or if its layout does not comply with the approved form.
Additionally, although the tenant’s right to terminate the lease within six months of entering into the lease as if a defective lessor disclosure statement is provided has been retained, the Bill introduces an objection procedure for the landlord and for disputed terminations to be a retail shop lease dispute.
- Provision for the landlord’s recovery of lease preparation costs where the tenant has negotiated, but does not proceed with, the final lease after instructing for it to be prepared; and
- Clarification that the landlord’s liability for compensation for business disruption does not apply where the landlord’s action is a reasonable response to an emergency or in compliance with a statutory duty.
- Provision for landlords to include a lease provision limiting a claim for compensation for anticipated disturbances such as redevelopment (which would otherwise entitle the tenant to compensation under s 43 (1)(a) – (e) of the RSLA due to substantially restricting access to the leased shop, cause significant disruption to trading etc.) where that:
- occurs within one year from the date the lease is entered into, and
- the landlord gives the tenant a written notice which meets the specified minimum requirements before the lease is entered into.
- Clarification that the tenant cannot ‘double – dip’ on compensation under ss 43(1), 46G (reasonable compensation) and s 46G (relocation costs) of the RSLA.
Additional general amendments
The Bill also makes some general amendments which:
- Clarify that landlords’ calculation of ‘apportionable outgoings’ for a shopping centre or leased building must exclude areas within a common area of the centre or building used for a ‘prescribed purpose’ from the total area used for determining the apportionable outgoings for the leased premises. ‘Prescribed purpose’ includes one or more of the following purposes:
- Information, entertainment, community or leisure facilities;
- Telecommunication equipment;
- Automatic teller machines or vending machines;
- Seating tables and other furniture;
- Trade out areas;
- Storage; and
- Give a major lessee (a tenant of five or more retail shops in Australia) the option to waive the requirement for a lease not to contain a ratchet provision (which would prevent a decrease, or limit the extent of a rent decrease following a review or give the landlord the ability to avoid the rent review, so that the rent does not decrease).
Carter Newell will wait to receive further announcements from the Queensland Government following the conclusion of the public consultation process, and the tabling of the Committee report in February 2016 in relation to any amendments to the Bill and its commencement date.
The five publicly available submissions lodged in response to the Bill were from an Assistant Professor in the Faculty of Law at Bond University, the Shopping Centre Council of Australia, the Queensland Law Society, the Property Council of Australia, and North Queensland Airports. These submissions are largely supportive and generally congratulatory as to the extensive consultation process and attempt to achieve significant improvements in the regulation of retail leasing – but they do make a number of specific, technical and general requests and recommendations for the Committee to consider.
Given the tenuous state of the Government’s majority in Parliament - even in the absence of vocal opposition from the property industry, small business or the public - the certainty of the 2015 Bill becoming law may not be known until it is actually passed into law.
There has been a call in the submissions for a six month lead time to implement and comply with the changes, so it will be interesting to see whether that request is taken up by the Committee.
In the meantime, landlords, tenants and letting agents for retail premises should gain some awareness and understanding of the key amendments the Bill proposes, so that they can be ready to align their processes to comply with those requirements if and when they come into effect.