Written by Joanne Keo.
On 1 July 2017, a number of changes to the Retail Leases Act 1994 (NSW) came into effect. This included the NSW Civil and Administrative Tribunal now having power to hear retail lease disputes for claims up to $750,000 and making decisions concerning rectification of leases and lessor disclosure statements. There are also a number of changes that concern both Landlords and Tenants.
What Landlords need to know:
Agreement to Lease
The Act now specifically applies to an agreement to lease of retail premises (Section 3B). The Landlord must provide the Tenant with a disclosure statement 7 days before an agreement to lease is entered into failing which the Tenant has a right to terminate the Lease within the first 6 months.
No undisclosed outgoings
A Landlord is required to provide full disclosure of any obligation of the Tenant to pay outgoings failing which the Landlord cannot recover from a Tenant any outgoings that are not disclosed (Section 12A). If an estimate of outgoings is specified in the disclosure statement and the actual amount payable is higher than the estimate, then the Tenant is only liable to pay the estimated amount unless the Landlord can prove that there was a reasonable basis for the estimate given.
Cannot charge Tenant Mortgagee’s consent fees
Section 14 and the definition of “lease preparation expenses” now clarify that a Landlord is not entitled to recover any expenses in connection with obtaining the consent of the Landlord’s mortgagee.
Copy of signed Lease
Section 15 now requires the Landlord to provide the Tenant with a signed copy of the Lease within 3 months after the lease signed by the Tenant is returned to the Landlord (or the Landlord’s lawyer).
Compulsory registration of the Lease
Leases for a term of more than 3 years (including any option term) must be registered by the Landlord within 3 months after the signed Lease is returned to the Landlord. Failure to do so will attract a maximum penalty of $5,500, (Section 16). This creates practical problems for Landlords with mortgages as mortgagees consent sometimes take months.
Bank Guarantee to be returned within 2 months
A Landlord must return a bank guarantee to the Tenant within 2 months after the Tenant has satisfied its obligations (as opposed to moving out) under the Lease that secured the bank guarantee (Section 16BA).
What Tenants need to know
Minimum 5-year term abolished
There is no longer an automatic right of Tenants to a minimum 5-year Lease term.
Expanded definition of outgoings
Section 3A revises the definition of outgoings to include fees charges by a Landlord for services provided by the Landlord for management, operation, maintenance or repair of the shop, building or land.
Excluded Retail Shops
Section 5(d) and Schedule 1A exclude certain uses from the Act including but not limited to ATMs, children’s rides, display of signage, internet booth, public telephones, private post boxes, storage licences and vending machines.
Compensation for Tenant who validly terminates in the first 6 months
A Tenant is entitled to recover compensation from the Landlord, including expenditure by the Tenant in connection with the fit-out of the premises, where the Tenant terminates the Lease during the first six months as a result of an incomplete, false or misleading lessor’s disclosure statement, or a failure to give the Tenant any disclosure statement at all (Section 11(2A)).
Exclusion from Turnover rent
Section 20 has been amended so that revenue from online transactions will be excluded from turnover rent except where goods or services are delivered or provided from or at the retail shop or if the transaction takes place while the customer is at the retail shop.
Section 35 now clarifies that the demolition provisions will apply if part of a building is to be demolished. The definition of ‘demolition’ has been widened as it no longer requires the repair, renovation or reconstruction to be ‘substantial’.
Section 39(1)(e) now allows a Landlord to withhold consent to an assignment of lease that has been awarded by public tender if the proposed assignee fails to meet any criteria of the tender.