The removal of minimum five year terms for retail leases across New South Wales offers benefits to both lessors and lessees. But what new steps will lessors need to take to ensure they comply with disclosure obligations? What new rights do lessees have? And where may other potential hazards lie for the state’s retail lessors?

What has happened?

The Retail Leases Amendment (Review) Bill 2017 (NSW) (Amending Legislation) has been passed by NSW parliament. The Amending Legislation provides for a number of changes to the Retail Leases Act 1994 (NSW) (Act) and will commence on a date to be fixed by parliament.

What are the significant changes to the Act once the Amending Legislation commences?

Agreements for lease

The Amending Legislation clarifies that the Act applies to an agreement for lease.

Excluded leases

The excluded uses under Schedule 1A of the Act have been broadened to include ATMs, children’s rides, communications towers, digital display screens, internet booths, storage or vending machines and other minor miscellaneous uses.

The Act does not apply to a retail shop that is a stall in a market unless that market is a permanent retail market.

Mortgagee’s consent fees

A lessor cannot recover mortgagee’s consent fees from a lessee.

Lessor’s disclosure

If a lessee terminates a lease in the first 6 months because the lessor failed to give a (or gave a defective) disclosure statement, the lessee is entitled to compensation from the lessor for costs reasonably incurred by the lessee in connection with entering into the lease, including the costs connected with the lessee’s fitout.

Lessor disclosure statements may be amended, by agreement between the parties, before or after the lease has been entered into.

Outgoings

A lessee is not required to pay any outgoings that were not disclosed in the lessor’s disclosure statement.

If the lessor’s disclosure statement provides an estimate of any outgoing and the estimate is lower than the actual amount, then, if there was no reasonable basis for the lessor’s estimate, the lessee’s liability to pay the outgoing will be determined on the basis of the original estimate (and the lessee’s liability in respect of any increases in the outgoing will be reduced proportionately).

Lease execution and registration

A lessor must:

  • provide the lessee with a copy of the fully executed lease; and

  • if a lease is for more than 3 years (or a shorter period and the parties have agreed to register the lease), lodge the lease for registration,

within 3 months of receiving the lease signed by the lessee (although this period may be extended on account of delays, not caused by the lessor, in obtaining head lessor’s or mortgagee’s consent).

Return of Bank Guarantees

A lessor must return an original bank guarantee to the lessee within 2 months of the lessee completing its obligations (that relate to the security) under the lease.

Turnover Rent

Turnover rent payable by a lessee cannot include revenue from online transactions unless:

  • the goods or services are delivered or provided from or at the premises (or the Centre in which the premises is located); or

  • the transaction takes place while the customer is at the premises.

Demolition

The demolition provisions under the Act apply even if only part of the building is proposed to be demolished. The lessor may only terminate the lease if the proposed demolition cannot be carried out without vacant possession of the premises.

Jurisdiction of the Civil and Administrative Tribunal

The monetary limit for the jurisdiction of the Civil and Administrative Tribunal has been increased from $400,000 to $750,000.

Minimum Term

The requirement for a minimum 5 year lease term has been removed.

What does the Amending Legislation mean for lessors and lessees?

The Amending Legislation provides for many changes that are beneficial to both lessors and lessees. In particular, the removal of a minimum 5 years term.

Lessors will need to take additional steps to ensure their compliance with their disclosure obligations, especially in respect of outgoings. Further, lessors will need to be efficient in signing and registering leases which may create administrative problems for lessors with large portfolios in NSW.