The Queensland Parliament finally passed the Retail Shop Leases Amendment Bill 2015 (Bill) on 10 May 2016.  Before passing the Bill a number of amendments were made.

A summary of the changes made by the Bill (as amended) to the Retail Shop Leases Act 1994 (Act) is set out below:

1. What leases are no longer covered by the Act?

  • The definition of retail shop lease now specifically excludes leases/licences for:
    • premises which have an area greater than 1,000 square metres (regardless of the identity of the lessee);
    • premises used to carry on a business by a lessee for a lessor as the employee or agent of the lessor;
    • ATMs;
    • vending machines; and
    • premises used for a non-retail business which are located in part of a retail shopping centre (eg a particular floor) where the proportion (by area) of retail businesses is 25% or less.
  • A new definition of ‘government lease’ has been introduced which refers to leases where the lessee is a local, state or the federal government.  For those leases there will is no obligation upon the:
    • lessee to give the lessor a lessee disclosure statement, legal or financial advice report; and
    • lessor to give the lessee a notice under section 46 relating to when the lessee’s option window closes.

2. When is a lease considered to have been “entered into”?

  • A lease is now regarded as having been ‘entered into’ on the earliest of the date that the:
    • lease is signed by all of the parties;
    • lessee takes possession of the shop under the lease; and
    • lessee first pays rent (other than a deposit paid to secure the shop) under the lease.

3. Contracting out of the Act

  • The prohibition regarding contracting out of the Act has been extended to cover other agreements entered into for a retail shop lease – eg side deeds.

4. Changes to Disclosure

Waiver of disclosure period

  • A lessor is now taken to have complied with the seven 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.

Subleases/Franchises

  • If a lessee intends to grant a sublease or franchise licence then the lessee may now 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.

Options

  • A lessor must now give a lessee an updated disclosure statement within seven 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 now has the right, within 14 days after receiving an updated disclosure statement from a lessor, to 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 six months and claim compensation from the lessor where the lessor fails to give a disclosure statement on time or gives a defective disclosure statement now also applies when a lessee exercises an option to renew.
  • The lessor’s defence to defective disclosure which was introduced in 2006 has been removed.  This means that the only way that a lessor may challenge a termination of a lease by a lessee for defective disclosure will be to establish that the disclosure statement was not defective.

Lessee’s disclosure

  • A lessee is now required to give the lessor a disclosure statement at least seven daysbefore the lessee enters into the lease.

Assignment

  • The assignor must now give the assignee an assignor disclosure statement and a copy of the lease at least seven days before the earlier of the day:
    • the assignee enters into the sale contract for the business; and
    • that the lessor is asked to consent to the assignment.
  • The assignee may now give the assignor a waiver notice reducing the seven day disclosure period.
  • The assignor must now give a copy of its assignor disclosure statement to the lessor on the day that the lessor is asked to consent to the assignment.
  • The assignee may now give a waiver notice reducing the lessor’s seven day disclosure period.

5. 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 now closes 21 days after the market rent is agreed or determined.
  • An appointed specialist retail valuer must now nominate timeframes (minimum 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 are now regarded as not having made a submission or given a response.

6. Outgoings

  • The definition of outgoings now specifically excludes any excess paid by a lessor in relation to an insurance claim.
  • For retail shopping centres, outgoings estimates and audited statements are now 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;
    • ATMs;
    • vending machines;
    • advertising displays;
    • seating, tables and other furniture;
    • trade out areas;
    • storage; and
    • parking.

7. Marketing

  • Where a lessee must contribute to a promotions fund, the lessor is now 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 one 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 is now required to make available to a lessee an audited statement of the lessor’s expenditure for promotions within three months after the end of the relevant accounting period.
  • Any unspent promotions funds must now be carried forward to the next accounting period.

8. Compensation

  • The application of the compensation provisions has been 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 now 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 is no longer 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 is 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 one 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.

9. Relocation

  • The relocation regime set out in the Act now applies to all relocations regardless of the reason.
  • Where the premises are within a retail shopping centre then the lessor is now 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 is now required to give the lessor at least one month’s notice of the earlier termination (previously only seven days’ notice was required).

10. Lessor’s ability to pass on costs to lessee

  • A lessor is now 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.

11. Release on assignment

  • Both a lessee and its guarantors are now released from any liability under the lease arising from a default by the assignee if the lessee has complied with its disclosure obligations and the disclosure statement which is given is not a defective statement.
  • A defective statement is a statement which:
    • is incomplete in a material particular; or
    • contains information that is false or misleading in a material particular.

12. Refurbishment

  • A clause in a lease which requires the lessee to refurbish the premises is now void unless the clause gives general details of the nature, extent and timing of the refurbishment that is required.

13. Penalties

  • Many of the monetary penalties for breaching the Act have been omitted. 
  • Rather than imposing a penalty, the relevant obligation which contravenes the Act is now simply void.

14. Transitional rules

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. For example:

  • 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.
  • 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 commences.
  • Consequently, it is recommended that specific care be taken when reviewing existing leases to determine whether the amendments apply or not.

15. Moving forward

The Bill is proposed to commence 6 months after it receives royal assent from the Governor.  Consequently, the Bill is likely to commence operation in mid to late November 2016.

Clive Nichol