Retail leasing in nsw: long awaited changes are one step closer

After lengthy industry consultation and discussion, the proposed amendments to the Retail Leases Act 1994 (NSW) (‘RLA’) are now one step closer.

The Retail Leases Amendment (Review) Bill 2016 (‘the Bill’) recently passed the Legislative Assembly and Legislative Council without amendment and is now awaiting on Royal Assent.

No more ‘5 year minimum terms’

The Bill removes the existing provisions requiring a minimum five year term for retail shop leases. This is a significant change which reflects the nature of the modern leasing market. In our experience, both landlords and tenants often agree to enter into shorter term leases because a shorter commitment suits their business needs. The removal of this requirement will be welcomed by many landlords and tenants, as it will limit unnecessary compliance (and legal) costs and red tape for shorter term leases.

Certain leases expressly excluded from operation of the RLA

The Bill creates a new Schedule 1A which excludes leases of premises used only for certain non-retail purposes from the operation of the RLA. The excluded purposes include:

  • ATMs
  • vending machines
  • public telephones
  • children’s rides
  • signage display
  • internet booths
  • private post boxes
  • car parking (excluding car parking provided as part of the business of a car park)
  • communications towers and
  • self-storage units, storage lockers.

The definition of retail shop may currently capture the above premises if they are located in a shopping centre. This amendment will remove uncertainty in relation to businesses within shopping centres which are not ‘retail’ to ensure appropriate coverage of the RLA.

Expansion of the Tribunal’s jurisdiction

The NSW Civil and Administrative Tribunal (NCAT) is intended to be the main adjudicating body for retail leasing disputes under the RLA and therefore it is appropriate that it has jurisdiction to deal with the majority of disputes – which is simply not the case in the current environment. The Bill expands the jurisdiction of the NCAT, by increasing the monetary limit for claims from $400,000 to $750,000, and expands the grounds on which the Tribunal can order the rectification of a retail shop lease (currently limited to when the parties consent to rectification).

The amendment reflects increased start up and operations costs of retail businesses, because the reality is that the costs of operating a retail outlet have increased since the jurisdictional cap was first set. This will mean that more disputes will be captured by the NCATs jurisdiction, allowing for faster and cheaper results for tenants and landlords who find themselves in dispute.

So, I’m a tenant… What effect does this have on me?

  • Landlords will be liable to pay compensation to tenants who validly terminate a lease in the first six months under certain circumstances (including because they were not provided with a disclosure statement or what they were provided was incomplete, false or misleading). Landlords will be liable for the costs reasonably incurred by the tenant in entering into the lease, including expenditure in connection with the fit out of the premises.
  • Tenants will not be required to pay any amount of outgoings unless that liability was disclosed in the disclosure statement, with restrictions on how outgoings can be estimated and enforced.
  • Landlords will be required to return any bank guarantee to the tenant within two months after the tenant completes performance of any obligations secured by the bank guarantee.
  • Tenants will not be required to provide turnover information to landlords that arise from online sales. Further, rent charged by way of a percentage of turnover will exclude online sales revenue other than online sales where goods or services are delivered or provided from the premises, or where the transaction takes place while the customer is at the premises.

So, I’m a landlord… What effect does this have on me?

  • The definition of outgoings will be expanded to include fees charged by a landlord for services provided in connection with the management, operation, maintenance or repair of the retail shop building or land.
  • Tenants and landlords will have the ability to amend a disclosure statement by agreement and in writing, rather than being required to reissue a disclosure statement (which has the flow on effect of resetting the time for giving the disclosure).
  • Landlords will be granted an extended timeframe to provide a copy of the signed lease to the tenant – what was previously one month will now be three.
  • Landlords will now be required to register leases with a term of more than three years within three months after the lease is returned. There are exceptions for delays that are beyond the landlord’s control.
  • Landlords will be excluded from recovering the expenses they have incurred in obtaining mortgagee consent to a lease.

What should you do?

Given the significance of the changes, landlords and tenants should keep up to date with the proposed changes and likely commencement date. We will provide a further update once the commencement date has been announced.

For more information contact:

Jennifer Jaeschke | Senior Associate
(02) 6279 4444