He Who Snoozes Loses - Proposed Enhancements To Retail Tenant´s Rights.

Despite the Productivity Commission recently recommending the unwinding of the overregulation of retail tenancies in New South Wales, The Department of State and Regional Development has issued a "discussion paper" proposing an immense increment in such regulation. If implemented, the proposals will enhance the retail tenant's rights and open the flood-gates to retail tenancy claims wider than ever before.

The proposed amendments read like a retailer advocate's wish-list proposing, among other things, to amend the Act so as to overcome many of the sensible and appropriate interpretations of the Retail Leases Act provisions by the Administrative Decisions Tribunal and the Supreme Court of New South Wales. 22 areas are identified for consideration, far too many to be addressed here. The full discussion paper can be downloaded by clicking here. In this paper, we will focus on just a few of the most pertinent.

• bank guarantees: Security bonds became a threatened species in the retail lease environment upon their heavy regulation that commenced 1 January 2006. Bank guarantees provided the efficient alternative. Unfortunately, it appears the government cannot resist the temptation to regulate and is proposing that in order to draw on a bank guarantee, there should be agreement between the parties or tribunal order imposing landlords to new expenses and delays.
• misrepresentation claims: The decision of Armstrong Jones Management Pty Limited v Saies-Bond & Associates Pty Limited¹ was the subject of our November 2007 article "The Clock is Ticking on 'Pre-lease' Misrepresentations". You can view this update by clicking here. In this case it was decided that pre-lease misrepresentation claims had to be brought within six months of entering into the lease. The Department puts the position that this may not be sufficient and proposes to extend it to 3 years. Further, the tenant's remedy for incomplete or materially false or misleading information in a disclosure statement is proposed to be extended. The current entitlement is simply a right to terminate. The amendments propose compensation for the misrepresentation or, if the tenant elects to terminate, compensation for fit-out costs thrown away.

• end of lease issues: The discussion paper raises concerns about a perceived imbalance of bargaining power at the time a sitting tenant is negotiating a new lease. It is attributed to the tenant not being as well informed of the rents other tenants are paying and pressures relating to possible loss of goodwill and fit-out, if a new lease is not secured. Consequent upon that, landlords are accused of imposing higher than current market rents to renew arrangements.

• registration of retail leases: The proposal is for an obligation upon landlords to register all leases of three or more years (currently they simply have to provide a lease in registrable form).

• timely provision of lessee's copy of the lease: It has been put to the Department that landlords refuse or neglect to give tenants a copy of the executed lease on a timely basis, making it difficult for the lessee to market the business. The reality is that the regulation of managed funds often makes the landlord's execution a long and involved process involving solicitors, agents, responsible entities and the trustee in whose name the land is registered. This issue is compounded where there is more than one landlord.
  
  It is suggested in the discussion paper that this could be addressed by the tenant being entitled to withhold rent until a copy of the executed lease is provided. That would sharpen landlords' document execution procedures in no time!

• extending lease term when fit-out is required: It is suggested that where a tenant is required to do a major fit-out during the term of the lease, the tenant should be entitled to an extension of the term, so as to permit it to be in occupation for five years after the date the fit-out is effected, enabling its costs to be amortised.

• use of advertising or promotional funds: Tenants have raised concerns about such funds being applied to offset rent where a particular tenant may be entitled to a rebate or compensation. Regulations are proposed to prohibit the use of such funds for that purpose.

• change in tenancy mix that increases competition: Tenants have complained about the effect of the introduction of competing speciality shops or anchor tenants expanding their core businesses so as to compete with existing speciality shops. An example of the latter is a supermarket commencing to sell flowers, in competition with the centre's florist.
  
  A two prong approach is proposed:

• statutory five years leases and failing businesses: After imposing the five year regime on landlords, tenant's advocates now assert that it is unfair that a tenant with a failing business should have to comply with the lease covenants for the full five year term. There are two proposals to mitigate this travesty:

• unconscionable conduct and unfairness: The discussion paper puts the case that the law in respect of unconscionable conduct in the context of retail leases is not providing the protection intended. It is put that the threshold for a finding of unconscionable conduct is very high, requiring conduct that is "highly unethical" and involves "a high degree of moral obloquy" as opposed to conduct that is simply "unfair" or "unjust". Whilst in our view the assessment of the operation of the law in respect of unconscionable conduct is flawed, a number of options for remedies for "unfair" or "unjust" conduct are being considered. Any regulation in this respect would be experimental and likely to lead to a substantial increase in the number of claims being referred to mediation and progressing to litigation in the Administrative Decisions Tribunal.

There are many other areas proposed for change to "address the imbalance of bargaining power" and other "clarifications".

Whilst it is highly unlikely that all of the proposals put in the discussion paper will be enacted, those that are not may well represent the "thin edge of the wedge" for the next review. It is clear that the Department has listened carefully to the retail advocates. The discussion paper is the best indication of how it is thinking. The tide seems to be flowing strongly in the direction of enhanced consumer protection over the Productivity Commission's recommendation of reduced regulation. Despite that, parties opposed to the proposed reforms need to consider them closely and put their cases, preferably by balanced and carefully drawn written submissions. If strong and plentiful arguments are not put to the contrary, you can expect many of the changes to be implemented in the next round of amendments to the Retail Leases Act and its regulations.

Parties interested in making submission in response to the 2008 Discussion Paper on Issues Affecting the Retail Leasing Industry in New South Wales need to do so by 26 May 2008. The Department indicates that confidentiality of the source of submissions will be maintained where specifically requested.

Footnote:

1 [2007] NSWADTAP 47.

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