Australia: Recent changes to the Retail Leases Act 1994 (NSW) – what does this mean for you?

The Retail Leases Amendment (Review) Act 2017 (NSW) commenced on 1 July 2017. Schedule 1 to that Act sets out the amendments which have been made to the Retail Leases Act 1994 (NSW).

What follows is a brief summary of the main changes which will now typically apply to leasing transactions.

1. Registration requirements

Where a retail shop lease has a term of more than 3 years (including option terms), or where the parties agree that the lease is to be registered, the landlord must lodge the lease for registration within 3 months of it being returned to the landlord following execution by the tenant.

2. Removal of minimum 5 year lease term

The requirement that a retail lease must be for a minimum 5 year term has been removed. This allows for more flexibility by parties in negotiating leases for a shorter term. Consequently, there is now no need to obtain the previous 'section 16 certificate' for leases that were under 5 years.

3. Outgoings – duty of disclosure

The amendments increase the landlord's duty of disclosure in relation to the outgoings to be included in the landlord's disclosure statement. A tenant will not be liable to pay for outgoings that have not been disclosed before the lease was entered into, unless those outgoings take the form of new statutory charges that arise under legislation after the landlord's disclosure statement has been provided.

Further, if an estimate is provided in the disclosure statement and that estimate is less than the actual amount payable (and there was no reasonable basis for the estimate), the tenant's liability will be limited to the estimate.

4. Executed copy of lease

Landlords must provide tenants with an executed copy of the lease within 3 months (that period may be extended in certain circumstances) after the lease is returned to the landlord, the landlord's lawyer or agent following its execution by the tenant.

5. Bank guarantee – obligation to return to tenant

A landlord must now return a bank guarantee within 2 months after the tenant completes performance of the obligations under the lease for which the bank guarantee is provided as security, except that an expired or cancelled bank guarantee is not required to be returned.

Where a landlord is unable to return an original bank guarantee, it is able to satisfy the requirement to return the bank guarantee by providing any consent or release necessary to have the bank guarantee cancelled.

The new provisions provide that a landlord may be liable to compensate the tenant for:

  1. any loss or damage suffered by the tenant as a result of any failure by the landlord to return a bank guarantee; and
  2. reasonable costs incurred by the tenant in connection with the cancellation of a bank guarantee because the landlord was unable to return the original bank guarantee.

6. Lease assignment – withholding consent

An additional ground has been included which allows a landlord, in the case of a retail shop lease awarded by public tender, to withhold consent to an assignment if the assignee fails to meet the criteria of the tender.

7. Lease assignment – seeking consent

A tenant is now required to provide its assignee with an 'updated lessor's disclosure statement' in order to obtain the landlord's consent to an assignment. To enable the tenant to do this, the landlord must provide the tenant with an updated lessor's disclosure statement within 14 days after being requested to do so by the lessee. If the landlord fails to do this, the tenant must provide the assignee with its own updated disclosure statement which it must complete to the best of its knowledge.

Previously, if the landlord failed to provide a copy of the disclosure statement within 14 days, the tenant had no obligation to provide anything to the assignee.

8. Mortgagee consent fees – landlord cannot recover

A landlord is prohibited from seeking reimbursement for expenses incurred in connection with obtaining the consent of a mortgagee.

9. Turnover rent for online transactions

The amendments now make it clear that income for most online transactions are to be excluded for the purposes of determining turnover rent. In addition, a tenant cannot be required to provide the landlord with information relating to most online sales.

10. Terminate lease due to deficiencies with disclosure statement – tenant entitled to compensation

Where the tenant terminates a lease within the first 6 months due to the landlord's failure to issue a disclosure statement or issues one that is deficient, a tenant will be entitled to claim compensation for costs reasonably incurred in entering into the lease, including fitout costs.

11. Demolition

Under the changes to the demolition provisions in section 35, the protections to the tenant extend to demolition of any part of the building and not just demolition of the building as a whole. In addition to the existing provisions that the landlord must have a genuine proposal in relation to demolition, the landlord will only now be able to terminate if the proposed demolition cannot be carried out practicably without vacant possession of the premises.

12. Excluded premises

Premises used wholly for certain non-retail purposes will be excluded from the applicability of the Act including ATMs, vending machines, public telephones, children's ride machines, internet booths, private post boxes and certain storage uses.

13. Agreements for Lease

The Act now applies to an agreement for lease in the same way it applies to a lease. Thus, a landlord must comply with obligations such as providing the tenant with a disclosure statement 7 days before the agreement for lease is entered into. This means that a tenant will be entitled to terminate an agreement for lease within the first 6 months.

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