The Retail Industry has six months to prepare for significant changes to retail leasing in light of significant amendments to the Retail Shop Leases Act 1994 being passed on 10 May 2016. We give you a snapshot of the highlights (and lowlights) below. You need to act now to ensure a seamless transition to the new landscape.

Highlights

We have noted some key changes, however the breadth of the changes are much wider and the transitional arrangements are comprehensive.

The amendments contain significant changes to the Act, including:

  • Is it really a retail shop?!: Retail Shop Lease Definition exclusions

The Act will no longer apply to any retail shop with a floor area of over 1,000m2. The additional requirement that the lessee also be a listed corporation has now been removed. In addition, some non-retail businesses operating in multi-level centres or on pad sites and stand-alone buildings may also be exempted. ATMs are also specifically excluded, clarifying some previous uncertainty.

  • No double dip: compensation for relocation and demolition clarified

The amendments clear up the potential for "double dip" compensation under sections 43 and 46, confirming lessors are not liable to pay compensation under section 43 where the lessee is entitled to relocation/demolition compensation (under section 46G or 46K).

  • Reviving the ratchet: major lessees can waive rent review restrictions

Ratchet clauses and multiple rent review mechanisms can now be commercially agreed with major lessees, provided the lessee gives notice to the lessor waiving the rent review provisions in the Act. Legal and financial advice is no longer required for major lessees.

  • Seven-day disclosure waiver

The amendments allow the lessee to waive the seven-day disclosure period for providing disclosure statements and draft leases, however they will still need to be given before the lessee enters into the lease.

  • I told you so!: notice of anticipated disturbance

Leases can limit compensation for disturbance within one year after the lease is entered into, provided the lessor gave the lessee written notice detailing the nature, likelihood, predicted length and effect of the disturbance. We expect to see these disclosures being utilised in leases entered into leading into or during construction or re-development of shopping centres.

  • I'm in, no wait I'm out: withdrawal of exercise of option

Lessors must provide lessees with a current disclosure statement within seven days of exercise of an option, unless the lessee waives the requirement. The lessee then has an option to withdraw the notice of exercise of option for any reason, within 14 days of receiving the current disclosure statement. Failure to provide the current disclosure statement will also give the lessee a termination right in the first six months of the option.

  • Be specific: refurbishment obligations must include full details

Refurbishment obligations in leases need to be specific including details of the nature, extent and timing of the refurbishment. Any provisions that do not meet the requirement will be void.

  • What's your plan: marketing plans now required

Lessors who recover promotion or marketing levies must give the lessee an annual marketing plan showing the details of the lessor's proposed spending on promotion and advertising. The marketing plan must be provided at least 1 month prior to the start of each accounting period.

Action plan

If you are involved in the retail leasing industry there are steps that you can take now to be ready for the changes:

  • Lessors planning redevelopment need to rethink disclosure arrangements and lease terms now to ensure they can take advantage of the compensation changes.
  • Lessors should have their standard leasing documentation and disclosures reviewed and updated to comply.
  • Agents and lessors should update their heads of agreement templates.
  • Lessors and centre managers should review their outgoings statements to ensure compliance and should start preparing the new marketing plan.
  • Lessees, lessors and agents should learn about the changes and how they will impact on their day to day operation.