Australia: Change ahead for landlords and tenants in Queensland - Retail Shop Leases Act amendments on the way

What you need to know

• The Retail Shop Leases Amendment Bill 2015 (Qld) has been passed, introducing long-awaited amendments to the Retail Shop Leases Act 1994 (Qld) (Act).
• Both landlords and tenants will be affected, with some of the critical changes including those relating to landlords' disclosure obligations, tenants' ability to obtain compensation from landlords in the event of certain disruptions, and the types of tenancies covered by the Act.
• Retail tenancy documents should be reviewed now to identify whether, and if so how, they should be updated to account for the legislative changes that are expected to come into force before the end of the year.

Both landlords and tenants involved in retail shop leasing in Queensland will soon be affected by legislative changes that have recently been passed and have been a long time coming.

The Retail Shop Leases Amendment Bill 2015 (Qld) was passed on 10 May 2016, introducing amendments to the Retail Shop Leases Act 1994 (Qld) (Act). The amendments to the Act will give practical effect to the recommendations of a 2011 statutory review which was followed by heavy stakeholder input, as well as a Parliamentary Committee review.

The legislative overhaul reflects an attempt to streamline landlord and tenant interactions and remove red tape, while still preserving the consumer protectionist principles that led to the establishment of the legislation over twenty years ago.

The amendments to the Act will come into force on a date to be set by proclamation, currently expected to be in November 2016. All relevant leases entered into after that date will be immediately subject to the Act in its amended form. Now is the time for both landlords and tenants to familiarise themselves with the wide-ranging changes and start preparing for the day they take effect.

Summary of major changes

Tenancies covered by the Act

The Act will no longer apply to:

• tenancies with a floor area over 1000m2
• some non-retail businesses operating in a retail environment, such as doctors' surgeries or commercial offices in a shopping centre depending on their location and proximity to other retail businesses
• some common area tenancies, such as ATMs, telecommunications facilities and vending machines.

Disclosure requirements

The existing disclosure regime has been widely considered to be excessive, cumbersome and confusing. The amendments to the Act will bring about some key changes to the current disclosure regime, particularly:

• the Act will clarify when a lease is "entered into" for the purposes of the landlord providing the disclosure statement
• tenants will be provided with an option to waive their right to receive a disclosure statement
• disclosure will be required when a tenant exercises its option to renew the lease, and the tenant will have a right to withdraw the exercise of its option if it does not wish to renew after receiving the disclosure statement
• tenants will be able to request a disclosure statement from a landlord if they wish to grant tenure to a franchisee or sublessee of the premises.

Market rent reviews

The market rent review process will be clarified by way of a step-by-step process in the Act.

All market rent reviews will assess rent on an effective rent basis.

Outgoings

More stringent requirements will be imposed on landlords, for the benefit of tenants, for the recovery and reporting of outgoings.

If a landlord fails to comply with its requirements under the Act in relation to outgoings reporting, the tenant will have the right to withhold outgoings payments.

Assignment

On the assignment of a lease, guarantors will be automatically released from their guarantees.

Compensation

The Act will clarify that a disclosure statement is only 'defective' (giving the tenant a right to terminate the lease or claim compensation) if it is missing information, or has errors, in respect of a material particular.

Tenants will be prohibited from claiming compensation from landlords for business interruption in the event of emergencies.

A landlord will be able to limit the tenant's right of compensation in the lease terms for any specific disruptions that occur during the first year of the term.

If a tenant wishes to seek compensation for loss or damage suffered due to a defect in the landlord's disclosure statement, it will need to give written notice to the landlord as soon as possible noting the damage or loss suffered. If the tenant fails to do so, it will run the risk of diminishing its claim for compensation.

Costs

Where landlords incur costs for obtaining mortgagee consent to a lease or any dealing with a lease, they will be prohibited from recovering those costs from their tenants.

If a lease is prepared but the tenant does not then enter into it, the landlord will be able to recover its legal costs from the tenant.

Other changes

Redecoration clauses in leases will be void unless they specify the nature, extent and timing of the works the tenant is required to perform.

Landlords seeking to recover marketing levies or contributions from tenants will need to have specific marketing plans for the centre and they will need to ensure the plans are available for the tenant's review.

The Act will not require the tenant to provide the landlord with turnover reports. If the landlord wishes to receive such reports, these requirements will need to be specifically described in the lease.

Key takeaways

Current expectations are that the legislative changes will come into effect in November 2016. There are steps that both landlords and tenants should start taking now to ensure they are appropriately prepared.

Landlords should:

• review their suite of retail leasing precedent documents and consider whether, and if so how, they should be updated to account for the changes
• familiarise themselves with the detail of the impending changes to the disclosure regime to ensure they meet their obligations
• ensure that any upcoming works and developments (which are likely to be material particulars that need to be disclosed in disclosure statements) that may affect tenancies or common areas of the leased centres are adequately disclosed to tenants in the disclosure statements
• update their outgoings reporting practices in consultation with their accountants
• where they would like to collect marketing levies or contributions, develop a marketing plan (if they do not already have one) which can be provided to the tenants.

Tenants should:

• ensure they understand how their rights will change in relation to the exercise of their option to renew a lease
• be mindful of the increased limitations on their ability to recover compensation from the landlord in the case of certain disruptions
• enter new lease negotiations with full awareness about the risk that they may be liable for costs if they fail to proceed with a lease after the landlord has prepared lease documents.

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories