Retail Leasing Update

Retail tenants and landlords listen up! Changes to the laws governing retail leases in Victoria came into effect this week that impact you.

The Retail Leases Amendment Bill (‘the Bill’) amends key aspects of the Retail Leases Act 2003 (‘RLA’) and Building Act 1993 (‘Building Act’). The below amendments are effective from 1 October 2020, except for those regarding essential safety measures which came into effect on 23 September 2020.

The main purposes of the changes are to:

  1. clarify the obligations of landlords and tenants in respect of essential safety measures;
  2. require landlords to give information to tenants in a timely manner;
  3. ensure landlords return security deposits to tenants within a reasonable time;
  4. create a new early rent review process for tenants under retail leases that have market rent reviews on renewal; and
  5. establish a cooling off period for the renewal of retail leases under certain circumstances.

The key amendments to the RLA are:

Essential Safety Measures:

Landlords are now able to:

  1. require a tenant to undertake capital works at the tenant’s own cost; or
  2. require a tenant to pay for the cost, or part of the cost, of carrying out repairs or maintenance work; or an installation relating to fit out of the retail premises for which the tenant has agreed to pay.

Landlords can also recover the cost of repairs or maintenance work in respect of an essential safety measures from their tenant in the form of outgoings.

Importantly for landlords, if a tenant carries out, or causes to be carried out, works in respect of an essential safety measure on behalf of the landlord, that work does not affect the obligations of the landlord to comply with their obligations under the Building Act as an owner of the building.

Disclosure Statements

Landlords must now provide a tenant with a signed Disclosure Statement and the lease in the final form in which it must be at least fourteen (14) days before entering into a retail premises lease.

You must ensure that the Disclosure Statement provided to a retail tenant is current and complete, and you must notify the tenant of any changes made to it when compared to the last version provided. Failure to be transparent in this regard could result in a landlord being fined $41,305 (if a corporation) or $8,261 (if an individual).

Security Deposit

In the past, landlords were required to return security deposits “as soon as practicable” after the termination or expiration of the lease.  Landlords are now required to return the tenant’s security deposit within thirty (30) days of the lease ending, provided the tenant has performed all of their obligations under the lease.

Obligations Relating to Lease Renewal

Disclosure statements issued in relation to the renewal of a lease must:

  1. set out any changes to the previous disclosure statement given to the tenant in respect of the lease; and
  2. include information that is current up to three (3) months before the issue of the disclosure statement

If a lease contains and option to renew, a landlord must now give the tenant a notice at least three (3) months before the last date that an option to renew can be exercised, which outlines:

  1. the date by which the option to renew the lease may be exercised by the tenant; and
  2. the rent payable for the first 12 months under any renewed term of the lease; and
  3. the availability of an early rent review; and
  4. the availability of a cooling off period; and
  5. any changes to the most recent disclosure statement provided to the tenant, other than any changes in relation to rent.

A failure to provide a notice that complies with the new provisions of the RLA will result in the option date being extended until three (3) months after the date that the landlord provides a compliant notice.

Early Rent Review by Tenants

If the tenant has an option to renew and the lease provides for a rent review to be made on the basis of market rent of the premises, the tenant may request an early rent review. In order to trigger the review, the tenant must give the landlord a notice within twenty-eight (28) days of receiving the landlord’s renewal notice.

If a specialist valuer is engaged to determine market rental and the tenant is not notified of the market rent determination at least fourteen (14) days before the last date the option to renew the lease may be exercised, that date is extended to fourteen (14) days after the date on which the tenant is notified.

Cooling off for Renewal

If a tenant has exercised an option to renew a retail premises lease and has not requested an early rent review, the tenant may give the landlord a written notice in the cooling off period (being fourteen (14) days after the option to renew is exercised), that the tenant no longer wishes to exercise that option to renew the lease.

Where a cooling off notice is given to the landlord:

  1. the term of the lease is extended by fourteen (14) days; and
  2. the lease is not, and is taken not to have been, renewed; and
  3. the tenant is not able to exercise an option to renew the lease.

KEY TAKE AWAYS:

  • Start lease negotiations early. The lease must be in agreed form and a complete Disclosure Statement provided at least 14 days prior to a tenant signing.
  • Landlords must return security deposits within 30 days after a lease comes to an end.
  • Ensure you address essential safety measures in your retail lease and who bears the cost of improvements and repairs.
  • Landlords must diarise to remind tenants in writing about dates for the renewal of a lease at least 3 months before the renewal option period ends.
  • If market rent needs to be determined, tenants can ask for an early valuation. Organise the valuation early to avoid extending the current term to 14 days after the valuation is obtained.
  • Landlords be aware that tenants can cool off for 14 days after the commencement of a renewal period.

The above information is general in nature and is not intended to constitute legal advice as each lease is different. If you wish to clarify your obligations under a retail lease, don’t hesitate to call us to discuss your particular circumstances.