On 3 July 2019 the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2019 (SA) (Bill) was introduced to South Australia’s Legislative Assembly. The Bill proposes amendments to the Retail and Commercial Leases Act 1995 (SA) (Act).
In this article, we examine the major proposed amendments to the Act and discuss the penalties that may apply in the event of non-compliance.
Application of the Act
The Bill amends section 4 of the Act, which sets out the tenancies to which the Act will apply.
Generally speaking, a tenancy will be considered a ‘retail shop’ if the tenancy is used (even to a small extent) for the sale of retail goods or the provision of retail services to the public. However, certain tenancies are expressly excluded from the definition of ‘retail shop’ under the Act by virtue of section 4.
The Bill proposes to widen these exclusions to state that the Act will not apply to a retail shop lease at any time the rent exceeds a ‘prescribed threshold’ as determined by the Valuer-General. This means that the Act may apply, or cease to apply to a lease if, during the term, the rent falls below or is increased above the ‘prescribed threshold’, as well as in circumstances where the ‘prescribed threshold’ is changed.
However, an exception to this rule will arise if:
- the ‘prescribed threshold’ is exceeded at the time the lease is signed; and
- the lease is registered within three months of execution.
In these circumstances, the lease will be excluded from the application of the Act throughout the entire term, regardless of any changes to the rent or ‘prescribed threshold’ which would otherwise place the lease under the application of the Act. This will also apply to a renewal of the lease, provided that the renewal is registered within three months of execution.
It is notable that this exception will only apply to leases that are entered into after the Bill passes into law.
Currently, the ‘prescribed threshold’ is A$400,000 per annum (excluding GST). The Bill proposes to amend the Act to provide for the review of the ‘prescribed threshold’ within two years after the commencement of the Bill, and every five years thereafter.
Under the Bill, a landlord of a retail shop lease must, on the commencement of negotiations for the lease, provide the prospective tenant with a copy of the proposed lease and the ‘Retail and Commercial Leases Guide’ published by the Small Business Commissioner (the current version can be found here).
It is recommended that landlords prepare a ‘pro forma’ template lease that can be handed to prospective tenants at the commencement of negotiations to satisfy this requirement. Non-compliance can result in a fine of up to A$8,000.
The Bill removes the requirement for the landlord to give the tenant a disclosure statement on the renewal of a lease. It also introduces a penalty that will apply in the event that a landlord fails to give the tenant a disclosure statement before the tenant enters into a retail shop lease.
This penalty can be up to A$8,000. In addition, a tenant will be obligated to provide the landlord with a copy of the fully signed disclosure statement within 14 days of receiving it.
Execution and registration of a lease
The Bill prescribes timeframes within which the landlord must return a copy of the fully executed (or registered) lease to the tenant.
If the lease is not to be registered, the landlord must provide a copy of the fully executed lease within one month after the lease is returned to the landlord following its execution by the tenant.
If the lease is to be registered, the landlord must:
- lodge the lease for registration within one month after the lease is returned to the landlord following its execution by the tenant; and
- provide the tenant with an executed copy of the lease and confirmation that the lease had been registered within one month of the date of its registration.
Bank guarantees and other securities
The Bill introduces a two month timeframe within which a landlord to a retail shop lease must return a bank guarantee required under the lease to the tenant. This timeframe commences once the tenant has performed all of its obligations under the lease for which the bank guarantee is provided as security. Non-compliance with this requirement could attract a fine of up to A$8,000.
In addition, the Bill increases the maximum permitted security bond under a lease from four weeks’ to three months’ rent.
The Bill introduces a number of major amendments to the Act which are likely to have a significant effect on South Australia’s retail leasing legislation.
While the Bill has not yet become law, it is recommended that landlords (particularly shopping centre landlords) take steps to update their administrative procedures and lease terms to ensure compliance with the amended Act in order to avoid the penalties for non-compliance.