The Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Act) is currently under review by the WA Government.
The review aims to address imbalances in bargaining power and inequitable leasing arrangements. The review is currently in its consultation stage and will close on 8 August 2022. The full consultation paper can be downloaded from the Department of Mines, Industry Regulation and Safety here.
The consultation paper sets out key issues for discussion that deserve careful consideration by landlords and tenants to ensure that existing operational issues with the Act are addressed.
This article summarises the key provisions of the Act under review.
1. Leases covered by the Act
The Act generally applies to leases for the occupation of premises located in retail shopping centres and used for carrying on any business, or located outside retail shopping centres and used for a business mostly involving the retail sale of goods or a ‘specified business’ (for example, a hairdresser). The key exceptions are premises with lettable areas over 1000 m2 and leases held by listed corporations or subsidiaries of listed corporations.
The WA Government is considering broadening the Act’s application as follows:
- widening the definition of retail leases to broadly cover leases for retail related businesses, (subject to some exceptions);
- extending the Act to cover certain businesses with a lettable area greater than 1,000m2; and
- implementing a monetary threshold (linked to operational costs or payable rent) to determine which businesses should be excluded from the Act.
Based on the consultation paper, it is likely the WA Government will retain the current exclusion that applies to tenants of publicly listed companies and subsidiaries.
2. Minimum 5 year leases
Under the Act, tenants with leases longer than 6 months have the option to renew and extend the lease term to 5 years. This provides tenants with certainty, but can also stifle new business development where it may be in the interest of the tenant to have a short term lease. Several options have been advanced to amend this statutory option, including:
inserting a contracting out mechanism (with a potential requirement for a lawyer to advise the tenant on the implications of waiving the statutory right);
requiring that the tenant be in the premises for 12 months before the right applies; or
removing the right entirely.
3. Severe financial hardship
Changes are proposed to allow tenants to terminate a lease early, or seek changes to the terms of the lease, in circumstances of severe financial hardship. Tenants would need to apply to the State Administrative Tribunal (SAT) for orders either terminating or varying the lease. The following criteria are proposed to apply when considering an early termination order:
- whether there is financial hardship;
- whether the tenancy should be terminated;
- whether the tenant should be released from its obligation under the lease; and
- whether adjustments to the lease agreement to provide relief is more appropriate.
4. Other important changes
Other changes proposed include:
- additional disclosure requirements for tenants and landlords if the parties renew the lease or seek a lease assignment;
- provisions excluding online sales revenue from calculating tenant’s turnover;
- prohibition on landlords passing on land tax to tenants; and
- changes to the dispute mechanisms under the Act, including broadening the meaning of unconscionable conduct.
5. What’s next?
We are on hand to assist landlords and tenants navigate any proposed changes. Industry stakeholders can give their feedback of the proposed changes to the Act using the Submission Workbook. Submissions close on 8 August 2022.