Amendments to the Retail and Commercial Leases Act 1995 (RCLA) have arrived.
The foundation for the changes was set when the government committed to undertake a review of the RCLA in December 2013 with the intention of looking at ways to increase the protection for small-business lessees who pay rent below a certain threshold.
That process has now concluded, and the Retail and Commercial Lease (Miscellaneous) Amendment Act 2019 (Amendment Act) has been proclaimed and takes effect as of 1 July 2020.
We take this opportunity to remind you of the key changes that the Amendment Act introduces and how they may affect you and your lease.
Classes of lessees are to be exempt from the RCLA
Amendments to Section 4 of the RCLA excludes the RCLA from applying to a lessor if they are:
- the Crown or an agency or instrumentality of the Crown in right of the State, another State or Territory, or the Commonwealth; or
- a municipal or district council or other authority with powers and functions of Local Government; and
- the lessee is of a class specified by the regulations for the purposes of this paragraph.
This means that the RCLA will not apply to a lessor if the lessee is a person specified in the regulations as being excluded from the RCLA applying.
At the time of writing, the regulations have not been amended to include new classes of excluded lessees, but rather a broad power has been provided to the Government to introduce such regulations.
It is likely that the exclusions will apply to community friendly activities, as it was previously recognised that the following types of activities should be eligible for exemption:
- rental of pools and hydrotherapy services within the health system by a private physiotherapist, or swimming instructor;
- lease of Local Government facilities for Men's sheds and other volunteer organisations; and
- volunteer operations by sporting clubs of small shops at Council owned sporting facilities.
Application to the Small Business Commissioner for exemption from the RCLA
A lessor will now be able to apply to the Small Business Commissioner for an exemption to the RCLA where necessary. This provides a third option to the current applications available to either the Magistrates Court or the Minister for Small Business, which may be faster and more efficient.
Changes to the provision to provide a copy of the lease during negotiations
Pursuant to the new section 11, when negotiations are commenced with a prospective lessee the prospective lessee must be provided with:
- a copy of the proposed lease (particulars of lessee, rent and term not required at this stage). The penalty for not doing so is up to $8,000.00; and
- a copy of the Small Business Commissioner's Information Brochure called "Retail & Commercial Leasing Guide" (Section 11(2)). The penalty for not doing so is up to $8,000.00.
There are stricter rules regarding disclosure statements in the Amendment Act.
A disclosure statement will be required to be signed by the lessor (not a requirement at present but often done) and it must be served on the lessee personally; or
- by leaving at the last known place of residence, business or registered business office;
- by post - the service date is to be taken to have occurred when it would be delivered in the ordinary course of post; and
- by facsimile or email.
The lessee is then required to provide the lessor with a signed acknowledgment of receipt within 14 days of service.
There is now a new offence for failure to comply with this section with the maximum penalty for non-compliance set at $8,000.
One important amendment is that there is no longer a requirement for a disclosure statement to be provided to a lessee prior to a renewal of a lease.
Finally we note that the Retail and Commercial Leases (Miscellaneous) Variation Regulations 2020 (Variation Regulations) which also come into operation on 1 July 2020 and makes some minor changes to the prescribed form of disclosure statement, including making express reference to the Emergency Services Levy in the category of outgoings and amending the wording of clause 7 regarding 'consequences of breach'. Therefore any template disclosure statements currently being used will need to be updated from 1 July 2020.
Five year minimum term on holding over
Section 20B(3)(b) (minimum five year term) no longer contains the words 'with the consent of the lessor and the period of holding over does not exceed six months'.
This means that there is no longer a new automatic five year lease term when a lessee has been holding over.
Certified Exclusionary Clause certificates pursuant to Section 20K allowing a lessee to waive its statutory rights of security of tenure (minimum 5 year term) after receiving independent legal advice will now be able to be signed by the Small Business Commissioner as an alternative to lawyers.
The amendments mean that non-commercial lessees without a lawyer will be able to approach the Small Business Commissioner (for a fee of $200) instead of obtaining one-off legal advice when seeking to enter into a lease or licence that is for a term less than five years.
There is a new obligation on a lessor to return a bank guarantee within two months of completing its obligations under a lease. The period does not commence until after the lessee completes performance of the obligations under the lease. For example this would include a delay in completing make good obligations at the end of a lease.
Outside of the circumstances noted above, failure by a lessor to return a bank guarantee within time could result in compensation being owed to a lessee for loss or damage suffered as a result of the delay and a penalty of up to $8000.
GST exclusive amendments
The rent threshold of $400,000 and other sums under the RCLA are all confirmed to be GST exclusive. This was previously unclear.
The current rent threshold for leases moving into and out of the Act remains at $400,000.00. The amount is exclusive of GST. This means a lease where the rent is more than $400,000.00 (ex GST) is excluded from the application of the RCLA.
The threshold is to be reviewed by the Valuer General by 30 October 2022 (maybe later) and every 5 years thereafter (Section 6A).
Fluctuation of application of RCLA when rent threshold changes
If the rent threshold changes parties can avoid the risk of coming in and out of the RCLA by ensuring the lease and subsequent extensions are registered.
If the lease is outside the RCLA because the rent is over the then current threshold, and if the lease is registered within three months of it being signed, it will remain outside the RCLA even if the threshold is increased later (Section 4(3)). No mention is made in relation to a lease that is not subject to the RCLA for other reasons such as the lessee being a public company.
The permitted security bond amount has increased to three months (GST exclusive) of the initial annual rent (Section 19) , disregarding any incentives. It was previously four weeks.
An overseas company which is registered on an international stock exchange is excluded from the RCLA (Section 4(2)(f)).
Public charitable bodies
A public charitable body which is registered with the Australian Charities and Not for-Profits Commission will now be subject to the RCLA (Section 4(2)).
Watch this space
We will keep you advised as to the evolving landscape in this space and any trends that we notice, as well as the status of the proposed exemptions to be included in the regulations.
In the meantime, it is important that anyone that is party to a lease that falls under the RCLA understands their obligations, especially as the penalties have in most cases increased from $500 to $8000 for non-compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.