As of January 2011, new requirements for landlord's disclosure have been introduced under the NSW legislation governing retail tenancies. Further changes to that legislation are proposed under the Retail Leases Amendment Bill 2011.
New disclosure statement
New requirements for landlord's disclosure statements have been incorporated into the Retail Leases Act 1994 (NSW) (Act). The new form of disclosure statement must be provided for all retail leases entered into on or after 1 January 2011. Under the new regime, landlords must provide tenants with a plan of the premises and disclose more extensive information, including the following details:
- structures, fixtures, plant and equipment in the premises
- services and facilities provided by the landlord
- car parking at the building (previously only required if the premises was located in a shopping centre)
- any works planned or known by the landlord to the premises or the building/shopping centre, including any surrounding roads, during the term of the lease (previously only required if the premises was located in a shopping centre)
- whether the landlord adheres to the Shopping Centre Council of Australia's Casual Mall Licensing Code of Practice, and if so a copy of the Code must be attached (for premises in shopping centres).
A tenant may potentially be able to terminate the lease if a landlord does not provide a disclosure statement required under the Act. Landlords should therefore ensure that prospective tenants are issued with the new form of disclosure statement containing all the required information to eliminate the risk of termination.
Further potential changes to the Act
On 10 January 2011, the New South Wales Government released an exposure draft of the Retail Leases Amendment Bill 2011 (Bill).
Release of the exposure draft of the Bill followed a range of consultative meetings held by the government after the receipt of a number of submissions on its discussion paper relating to issues affecting the NSW retail leasing industry, which was released in 2008.
According to the NSW Minister for Small Business, the Bill aims for a 'fairer, transparent and more balanced approach' to retail leasing arrangements in NSW.
The Bill proposes various amendments to the Act, the most significant of which are explored below.
Stricter disclosure requirements
In addition to the new disclosure statement already introduced under the Act (summarised above), the Bill proposes stronger transparency by:
- requiring a landlord to givesix months' notice to a tenant of any alteration or refurbishment that would adversely impact the tenant's business (currentlytwo months' notice is required)
- enabling a tenant to require a landlord's disclosure statement before exercising an option to renew a lease.
Non-recoverable outgoings
Under the Bill, landlords will be prohibited from passing on land tax to tenants as recoverable outgoings.
Mandatory registration
In order to allow small retailers to compare the rent and other commercial terms applicable to their tenancies with those set out in leases of similar shops in the area, all retail shop leases that are for a term ofthree years or more are required to be registered (although this is already a requirement under the Conveyancing Act 1919 (NSW)) and to include a lease summary statement that includes the prescribed information.
Additionally, tenants will only be required to pay outgoings that are disclosed in the disclosure statement.
Requirements for alternative premises
When relocating a tenant, a landlord will be required, if practicable, to offer alternative premises of comparable commercial value. If the alternative premises offered by the landlord do not meet the requisite standard and the lease is terminated, then the landlord will be liable to compensate the tenant for the depreciated value of the tenant's fit out of the existing premises.
Termination on grounds of proposed demolition
After a landlord has provided a tenant with a notice of termination due to proposed demolition, under the Bill the tenant cannot be required to make any repairs or improvements to the premises, unless they relate directly to the safety and security of the building.
Refund of unused marketing contributions
A tenant will be entitled to a refund of such proportion of its contributions made towards a landlord's advertising and promotional costs that has not been spent by the end of the term of the lease.
Other changes
Other changes contemplated by the Bill include the following:
- provision for the issue of penalty notices for offenses under the Act and regulations
- increase of the monetary limit on the jurisdiction of the Administrative Appeals Tribunal for claims under the Act from $400,000 to $750,000.
Impact on landlords: a shift of power
The Bill, in its current form, represents a shift in balance of power between retail landlords and tenants. The new requirements proposed under the Bill will clearly be more onerous for landlords by limiting the costs that landlords can recover from tenants and imposing stricter disclosure, notice and registration requirements.
It should be noted, however, that at this stage the Bill is only in a draft form, with submissions on the exposure draft due on 11 February 2011. No doubt that the NSW state election in March 2011 will be a determining factor in seeing if the Bill is enacted, whether in its current form or at all.
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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.
