The Retail Shop Leases Act 1994 (Qld) (RSL Act) is currently required to be reviewed every seven years. On 25 November 2014 the Retail Shop Leases Amendment Bill 2014 (Bill) was released for public consideration, with the Attorney General (AG) nominating the Legal Affairs and Community Safety Committee to consider the Bill and further submissions from the public.
A report is due from the Committee on 2 February 2015, so there is still time for submissions to be made.
In this Alert, Partner James Bottomley and Special Counsel Natalie Gerrard discuss implications for Lessors and Lessees under the Bill.
The main implications for Lessors and Lessees under the Bill are listed below:
New benefits for Lessors:
- exclusion of all leases with a floor area greater than 1,000m2;
- exclusion of whole levels of a building from the definition of “retail shopping centre” where none of the premises on the level are retail, and the exclusion of whole buildings where a centre consists of multiple buildings and none of the premises in a building are retail (such as a standalone medical centre in a shopping centre car park). [This means that Lessor’s lawyers in these circumstances should have two sets of lease documents for their centre – one being retail and the other being commercial - as there are several major differences between retail and commercial leases];
- clarification that ATMs and vending machines are excluded from the operation of the RSL Act. [Previously a free standing ATM was considered to be excluded from being of a retail shop lease while ATMs in bunkers were considered to be subject to the RSL Act. This amendment clarifies that ATM leases (or licenses) are not retail shop leases];
- clarification about when a Lessor Disclosure Statement cannot be taken to be defective;
- provision for Lessor recovery of lease preparation costs where the Lessee has negotiated but does not proceed with the final lease after instructing it to be prepared. [Lessors and leasing agents should consider amending their offers to lease or letters of intent for retail premises to include a written notice by the Lessee for the Lessor to prepare the final lease in order to be able to recover these costs];
- provision for the Lessor’s liability for compensation for business disruption to not apply, where the Lessor’s action is a reasonable response to an emergency (such as a flood), and flexibility for a lease to limit a Lessee’s compensation claim for some specific business disturbances notified by the Lessor in advance.
And for Lessees:
- requiring the Lessor to also give a Lessor Disclosure Statement to an existing Lessee on the renewal of a lease under an option, and allowing the Lessee to withdraw the renewal notice after the Lessor Disclosure Statement is given (even if the new lease (option) period has commenced). [This is a major change and means that Lessors should be even more wary about granting options for further terms than they already are];
- allowing sublessors and franchisors (if they are a Lessee under the retail lease) to also request a Lessor Disclosure Statement from a Lessor in relation to a sublease or franchise, at their cost;
- Lessees will no longer be required to provide monthly certificates stating the turnover of the business nor annual statements of turnover prepared by a registered auditor. [This is another major change that will impact Lessors. If there is no longer an obligation on a Lessee to provide monthly or annual audited figures of its turnover, there appears to be no way for a Lessor to ascertain what the Lessee’s turnover is, other than perhaps undertaking an audit of the Lessee’s books. This is likely to result in major problems for the Lessor in calculating and receiving payment of turnover rent];
- ensuring that a Lessee is only liable to refurbish the leased shop during the lease term where the lease gives sufficient details of the nature, extent and timing of the required refurbishment;
- requiring the Lessor’s annual estimate and audited statement of outgoings to provide a breakdown of centre management fees;
- apportionable outgoings (those outgoings shared or enjoyed by a group of Lessees) now specifically include promotion amounts and maintenance amounts to the extent they are treated as Lessor outgoings under a lease;
- a Lessee can withhold paying apportionable outgoings until it receives an annual estimate of outgoings or an audited annual statement of outgoings;
- requiring the Lessor to make available to the Lessee a marketing plan detailing the Lessor’s proposed advertising/promotion expenditure and providing an annual audited report;
- providing for the release of the transferring Lessee (as the assignor) and its guarantors from the lease on assignment. [This rectifies an anomaly that arose when the last round of amendments were introduced in 2006 where Lessees were released on assignment but not their guarantors. Also, the requirement for all parties to have complied with the disclosure provisions has been removed and there is still uncertainty as to when the release takes effect as the phrase ”when the assignment is entered into” has not been clarified];
- making the Lessor liable to pay compensation to a Lessee if the shop was not available to the Lessee for trading on the day specified in the Lessor Disclosure Statement because of a default of the Lessor or anyone acting under the Lessor’s authority. [Lessors will need to carefully consider how their agreements for lease are drafted regarding handover and estimated commencement dates];
- if a Lessor wishes to relocate a Lessee, the relocated shop must be situated within the centre;
- making the Lessor liable for the cost of obtaining the consent of its mortgagee to the lease; and
- enhancing protection for prospective purchasers of retail businesses through assignor disclosure.
And generally, the Bill:
- purports to simplify procedural requirements by providing flexibility for the Lessee to waive the Lessor disclosure period. [This means that if a Lessor gives disclosure outside the statutory seven day time frame, the Lessee may, before it enters into the lease, give the Lessor a waiver notice and a legal advice report stating that the Lessee has been advised of the legal meaning and effect of the waiver. In this case the seven day disclosure requirement will be deemed to have been satisfied. A Major Lessee can also give a waiver notice but is not required to give a legal advice report with it.];
- purports to simplify waiver of the implied rent provisions by a Lessee with five or more retail shops in Australia (a Major Lessee). The proposed new rule is that a Major Lessee is no longer required to give a notice stating that it has received financial and legal advice about the lease, but instead is only required to give notice that it agrees that the provisions in sections 27(2)-(7) of the RSL Act (being the implied rent provisions) do not apply to the lease;
- provides some timing rules for the current market rent valuation process and provides that the specialist retail valuer is appointed by the chief executive rather than being nominated. (At present QCAT is the body that holds the chief executive’s authority to appoint specialist retail valuers.); and
- removes the statutory requirement for the RSL Act to be reviewed every seven years, which the AG believes will make for a “more flexible and effective policy and legislative response to emerging issues”. [Hopefully meaning that issues will be dealt with more promptly, as they arise, rather than waiting for the seven yearly review.