The Retail Shop Leases Amendment Act 2016 (the Amendment Act) commenced on 25 November 2016 and amended the Retail Shop Leases Act 1994 (QLD) (the Act). The Amendment Act will apply to all new leases entered into after this date. We summarise the key changes below and how they will affect tenants in Queensland.
What Leases are No Longer Protect by the Act?
The Act excludes a lease if the premises are both 1,000 sqm and the tenant is a listed corporation or a subsidiary of a listed corporation. The Amendment Act now excludes retail shop leases with a floor area of 1,000 sqm regardless of whether the tenant is a listed corporation or subsidiary.
All lease premises located in a retail shopping centre, regardless if its permitted use is retail or commercial, fall within the ambit of the Act. The Amendment limits that position by providing that the Act does not apply to non-retail businesses located in a shopping centre or multilevel building if the floor where the shop is located contains less than 25% of retail space.
The Amendment Act imposes an additional requirement on a landlord to provide existing tenants with a disclosure statement if the tenant exercises its option to renew its lease. In short, the landlord must now provide a current disclosure statement within seven days of receiving the tenant’s notice to exercise its option.
The tenant has the right to withdraw the renewal within 14 days of receipt without needing to provide an explanation. If you are a tenant, this is good news as you are not locked into the lease even after you have exercised your option. You can withdraw from renewing your lease if the information in the disclosure statement (e.g. the new market rent amount) doesn’t suit your circumstance.
There is also a new requirement for the assignor/seller of a business to provide a disclosure statement before the assignee/buyer enters into a sale of the business contract. Under the Amendment Act, tenants and assignees can waive the benefits of the disclosure period before parties can enter into the lease.
Turnover Rent Certificates and Statements
Under the Act, if the tenant paid rent as a percentage, then they would provide the landlord with a monthly certificate stating:
- the business’ turnover; and
- an audited statement of the tenant’s annual turnover (end of each lease year).
The Amendment Act removed this requirement to provide the landlord with monthly turnover certificates and an annual audited statement.
Under the Act, rent reviews in a retail lease cannot contain a ratchet provision which prevents the landlord from decreasing the rent. The Amendment Act allows major tenants (i.e. those with five or more retail shops in Australia) to waive this requirement.
The Act also prohibited multiple rent review mechanisms. The amendment now sets out how a specialist retail valuer is to determine the market rent. If a lease contains an option to renew, the tenant must accept the new market rent determination within 21 days, or the option expires.
Under the Amendment Act, a landlord cannot enforce a vaguely worded refurbishment provision (e.g. the tenant will carry out works ‘at the lessor’s reasonable discretion’). Such a provision in a lease must set out sufficient details about the nature, extent and timing of the refurbishment required to be enforceable.
Outgoings and Withholding Payment
Under the Amendment Act, a landlord must specify the following in the lease if they are to recover outgoings:
- how the tenant will pay outgoings;
- how the landlord will determine and apportion outgoings; and
- the method of payment.
The annual outgoings estimate and audited statement must include a breakdown of the estimated fees the landlord pays towards running the centre and centre management. Significantly, tenants under the Amendment Act can withhold outgoings payment if the landlord doesn’t provide their outgoings estimate.
Release of Assignor and Guarantor
Under the Amendment Act, the assignor (outgoing tenant) and the assignor’s guarantor are released from their obligations under the lease if they have complied with their disclosure obligation. This means that if they have given the assignee (incoming tenant) a disclosure statement, then the landlord cannot hold them responsible for any act of default by the assignee after the assignment date.
Tenant’s Liability for Lease Preparation Costs
Under the Act, the landlord cannot pass on the lease preparation cost to the tenant. Under the Amendment Act, the tenant will be liable for these costs if it has provided the landlord written notice to reprepare final lease documents and then doesn’t sign the lease.
The Amendment Act contains many new changes that both tenants and landlords should know to ensure their lease document is compliant.