Retail Shop Lease Landlords and Tenants – Changes coming from 25 November

A business’s lease is often crucial to the success of the business. For landlords, compliance with retail lease legislation is important for the validity of the lease and therefore the value of the building.

Queensland State Parliament has passed legislation amending the Retail Shop Leases Act 1994 (Qld) (the “Act”). These changes will take effect on 25 November 2016 and will have a major effect on landlords and tenants entering into retail shop leases after this date.

Here are some of the major changes.

Some types of premises excluded from retail shop lease legislation

The Act will no longer apply to:

• tenancies with a floor area of more than 1,000m²
• non-retail areas located in a multi-level building or single-level building if the ‘retail area’ occupies 25% or less of the lettable space of that level or building;
• Leases in common areas of a shopping centre; or
• areas such as centre management offices and shopping centre information desks.

Important Paperwork – Disclosure requirements

Disclosure documents are not very exciting but are very important.  Where there is a problem or dispute, the first thing lawyers look at is compliance with formal requirements such as disclosure.

Updated disclosure if an option is exercised

If a tenant exercises an option under a lease to extend the lease for a further term, the landlord must give the tenant a disclosure statement within 7 days of receiving the tenant’s notice. The tenant can then withdraw the exercise of option within 14 days of receiving the landlord’s disclosure statement.

This is a bit of a pain for landlords, but good for tenants.

Interestingly, the tenant does not have to show that they are negatively affected by the option terms disclosure as compared to the original lease’s disclosure, and does not have to act reasonably in walking away from the option.

Tenant’s Waiver

Tenants are now able to waive the 7 day disclosure period relating to the landlord’s disclosure statement. Currently, a landlord must give the tenant a disclosure statement at least 7 days before the tenant enters into the lease. This sometimes delays the commencement of the lease because the Landlord will usually not accept a lease from a tenant signed within the 7 day disclosure period.

This change is positive for landlords and tenants, as the parties can potentially enter into the lease earlier than they would have under the current provisions.

Subleases – Obtaining Disclosure from the Head-Landlord

Sub-landlords and franchisors will be able to obtain an updated disclosure statement from the head-landlord within 28 days of requesting the disclosure. This is intended to address the situation where a sub-landlord needs to give disclosure to a sub-tenant, but they also have an uncooperative head-landlord. This now requires the head-landlord to provide a disclosure statement.

Reasonable costs incurred by the head-landlord will be payable by the requesting party.

Franchisees

Franchisees will be exempted from having to seek legal and financial advice and provide legal and financial advice reports to landlords.

Market Rent Reviews and Option Periods

Where a lease provides that rent will be market reviewed at the commencement of an option period, the tenant will have an ongoing right to exercise the option until 21 days after the market review is determined. This applies, despite any provision in a lease which requires the option to be exercised by a specific date.

This means that the tenant will know what the new market rent will be under the option period, before they actually need to give notice to the Landlord that they want to exercise their option to renew the lease for a further term.

This gives substantially more power to tenants, as they can disagree with a market review but not have to be locked in to an option term and then be stuck with an independent valuation which they don’t agree with – they will not be bound by the option and can walk away from the lease.

Outgoings

Landlords are required to give greater detail in annual outgoings statements.

If a landlord fails to comply with these requirements, the tenant may have the right to withhold payment of outgoings.

Assignment

On the assignment of a lease, assignors and guarantors will be automatically released from their guarantees, as long as they have complied with their obligations under the Act when making the assignment.

Costs

Landlords cannot pass on costs to the tenant to obtain mortgagee’s consent to the lease. However, landlords can now pass on legal costs to a tenant if the tenant requests a lease to be prepared but then the tenant does not enter into the lease.

Redecoration

Redecoration clauses in leases will be void unless they specify the nature, extent and timing of the works the tenant is required to perform.

Marketing Levies

Landlords seeking to recover marketing levies or contributions from tenants will need to have specific marketing plans for the centre and they will need to ensure the plans are available for the tenant’s review.

These changes will significantly affect the practice of retail shop leasing for both landlords and tenants. We strongly recommend you contact FC Lawyers if you are proposing to enter into a retail shop lease on or after 25 November 2016.