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What you need to know
- The Retail Shop Leases Amendment Act (Qld) is set to commence on 25 November 2016, meaning that a range of changes to the Retail Shop Leases Act 1994 (Qld) will take effect in less than one month.
- The changes introduced by the Amendment Act will apply to current leases and to leases entered into after 25 November. The transitional provisions detail how the changes will be enforced for new leases, renewals and assignments happening around 25 November.
- Now is the time for retail landlords and tenants in Queensland to ensure they understand how any current leases, or leases currently under negotiation, will be impacted by the impending changes.
Retail landlords and tenants in Queensland will know that a raft of changes have been on the cards to amend the Retail Shop Leases Act 1994 (Qld) (the Act). In June, we provided a summary of the impending changes which you can revisit here.
A date has now been set for those changes to commence, being 25 November 2016.
The changes are introduced by the Retail Shop Leases Amendment Act (Amendment Act), which contains extensive 'transitional provisions' to dictate how and when the various amendments will be rolled out in different circumstances.
So what does this mean for your existing and new leases, renewals and assignments?
You have a current retail shop lease on foot. What do you need to know?
The changes introduced by the Amendment Act apply to any retail shop leases current as at 25 November (subject to some specific qualifications for certain clauses listed below). Since the provisions of the Act cannot be contracted out of, the changes will trump any existing clauses in those leases.
You are negotiating a new retail shop lease. Is your proposed retail shop lease caught under the new regime or the old regime?
In short, it depends on whether or not your lease has been 'entered into' as at 25 November.
Currently, the Act provides that a lease is 'entered into' on the date that it becomes binding (which raises questions about what 'binding' truly means) or on the date that the tenant enters into possession of the premises.
However, from 25 November, a lease will be 'entered into' on the earliest of the following dates:
- the date that the tenant enters into possession of the premises
- the date the lease is signed by both parties
- the date the tenant first starts paying rent.
If on 25 November a retail shop lease has not yet been signed and the tenant is not in possession, the current provisions of the Act will apply, even if the tenant has started to pay rent. From 25 November, a lease will be 'entered into' in accordance with the new provisions.
There are also changes to what a retail shop includes, which may mean that some 'retail shops' under the current Act will be considered to be commercial after the changes come into effect. Any retail shop leases current as at 25 November will continue to be considered a retail shop lease and will be covered by the Amendment Act moving forward.
How do disclosure arrangements work for leases entered into on or around 25 November?
The disclosure requirements for landlords for new leases have not changed, but the tenant may in certain circumstances waive the disclosure period. If the disclosure period under the existing Act ends before 25 November and the proposed retail shop lease is entered into on or after 25 November, the old landlord disclosure obligations apply with respect to the proposed lease.
From 25 November, a proposed tenant must provide its Lessee Disclosure Statement seven days before commencement of the lease. If the tenant has given the Lessee Disclosure Statement before 25 November, it will not have to wait the full seven days before signing the lease since it will have complied with the old regime.
The tenant is currently within its option exercise period. Do the new disclosure arrangements apply?
From 25 November, a landlord must give the tenant a current disclosure statement within seven days after the day that the tenant gives notice exercising its option to renew the lease. A tenant exercising its option before 25 November will not benefit from the new disclosure regime. The tenant can waive its right to receive the Landlord Disclosure Statement by notice to the landlord in writing.
After receiving the Lessor Disclosure Statement, the tenant then has 14 days to withdraw its renewal notice, regardless of whether the option period has commenced or not.
Some tenants may wish to defer exercising their option until after 25 November in order to be in a position to take advantage of the ability to withdraw the exercise of that option if the information in the Lessor Disclosure Statement is not to their liking (eg major increases in outgoings, future development plans or changes in tenancy mix. It will be in a landlord's interest to open the lines of communication with tenants well before the option exercise period approaches, including finalising market rent, discussing any upcoming changes and reconciling any issues.).
The lease is being assigned. Will the guarantor be automatically released along with the assignor?
One of the matters clarified by the changes to the Act is the release of guarantors on assignment of a lease. After 25 November, the assignor and guarantor will be automatically released from any liability under the lease resulting from a default by the assignee, provided the assignor complies with its disclosure obligations under the Amendment Act and that such disclosure statement is not defective.
For assignments occurring around 25 November, if the former provisions relating to assignor and assignee disclosure obligations have been complied with or any order relating to the disclosure obligations has been imposed before 25 November, and the disclosure statement is not defective, on and after 25 November the assignor and guarantor are released from ongoing liability under the lease.
What else do you need to know?
- Rent review
The Act has always restricted the way that rent reviews are conducted, for example providing one basis for the review of rent and prohibiting ratchet provisions.
A major tenant has always been able to waive the restrictions on rent reviews by giving a notice and financial and legal advice certificates. The tenant can now waive its rights under the Act in relation to rent reviews just by giving written notice to the landlord before entering into the lease.
If the tenant has previously given notice and provided the legal and financial advice under the former provisions of the Act before 25 November, this will be taken to be notice for any periods after 25 November.
Further, if notice is given by a major tenant under the current provisions, new sections of the Amendment Act regarding certain rent review provisions and ratchet rent will not apply.
Note that in relation to market rent reviews, if a specialist retail valuer has been agreed or nominated under former section 28 of the Act, on or after 25 November, the former sections 28A and 29 (regarding submission to valuer and matters to be considered by valuer) will continue to apply.
- Annual estimate of apportionable outgoings
Landlords will be required to provide outgoings estimates to the tenant at least one month before the start of any accounting period. If a retail lease is entered into within one month after 25 November, the landlord has until one month after the commencement date of the lease to comply.
- Marketing plans for promotion and advertising
If a promotional levy is payable by a tenant, the landlord is required to submit marketing plans detailing the proposed spending on promotion and advertising funds. The Act requires these plans to be given at least one month before the start of each accounting period. If an accounting period starts within one month after 25 November, the landlord will have up to one month after that accounting period starts to comply with the provisions.
If you are a landlord or tenant of retail premises in Queensland, now is the time to ensure you understand the transitional provisions under the Amendment Act and know how those provisions will affect your own circumstances. In particular, it is critical to understand whether your leasing arrangements will continue to be dealt with under the earlier legislation or the Amendment Act and what disclosure obligations and transitional provisions are relevant to your proposed retail lease.
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