It has been an interesting year so far in the property sphere!
This is evident in the new e-conveyancing process and now, in
proposed changes to legislation governing retail leases. On 1 March
2017, the Retail Leases Amendment (Review) Act 2017 (the
Act) was approved by Parliament, having been earlier introduced as
a Bill in November 2016.
What are the key amendments?
The Act gives effect to a statutory review of the Retail
Leases Act 1994 which consisted of various recommendations
which were informed by stakeholder consultation.
The Act makes the following changes which may have an impact on
franchising. The Act:
requires the landlord to provide full disclosure in the
disclosure statement of any contribution which the tenant will need
to make in outgoings;
removes the five-year minimum term requirement for retail shop
grants the right to compensation for a tenant who terminates a
lease in the first six months if they weren't provided a
the operation of the demolition provisions are clarified;
the procedure for tenants to seek the landlord's approval
for an assignment is clarified;
the landlord is now permitted to include some management fees
as part of the outgoings; and,
online sales revenue are excluded from turnover rent
calculations in most instances.
Why do these changes impact on the franchising process?
Franchising and leasing are intertwined – a suitable
premises to operate from is a key feature of most franchised
businesses and these suitable premises are usually leased. The
amendments which the Act implements therefore have significant
implications for both franchisors and franchisees.
Positive implications for franchisors and franchisees
The amendments have significant protections for tenants, which
in most instances, will have positive implications for both the
franchisor and the franchisee. This is due to the sub-lease or
licence arrangement which the franchisee must obtain from the
franchisor (who is the tenant in most instances) in order to
operate in the premises. This means that any benefits that the
franchisor obtains as a tenant will also benefit the
A significant protection for franchisors is that they aren't
required to pay any outgoings which aren't disclosed in the
disclosure statement. This requirement, in addition to the
requirement of disclosing estimations of outgoings in the
disclosure statement means that there is greater transparency in
relation to the franchisor's/tenant's requirement to pay
The Act also introduces more liabilities for landlords.
Landlords will now need to pay the franchisor/tenant compensation
if the franchisor/tenant terminates the lease within the first six
months, on the basis that the landlord didn't provide a
disclosure statement or because the disclosure statement was
incomplete, contained information that was materially false or
misleading. This amendment means that tenants/franchisors are given
extra protection and shouldn't forfeit funds on their
investment if they choose to terminate the lease for that
Another significant implication is that landlords can't
require the tenant/franchisor to provide turnover information for
online sales which weren't delivered from the leased premises.
This may result in a smaller turnover rent which will need to be
disclosed to the landlord, and in turn, increasing profits.
Possible negative implications for franchisors and
The repeal of the minimum five-year term of retail leases means
that tenants/franchisors are no longer entitled to an automatic
minimum five-year term upon entering a retail lease. One of the
potential implications of this is that tenants/franchisors and
franchisees may not have that security of tenure for their
The Act also provides that outgoings can now include
'management, operation, maintenance or repair of the retail
shop building or land'. This inclusion may significantly
increase outgoings for tenants/franchisors. The franchisees will
also need to bear these extra costs as per their sub-lease or
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.
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Franchisors should minimise the risk to their brands by helping their franchisees understand and meet their obligations.
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