NSW Enacts Major Retail Lease Amendments: Changes Generally Welcomed

Thursday 2 March 2017 @ 11.54 a.m. | Legal Research | Trade & Commerce

Having begun the process of a retail leasing review back in 2014 (see our previous article NSW Government to Review Retail Lease Act), the NSW Government has completed the process of reforming the Retail Leases Act 1994 (NSW) (the 1994 Act) with the enactment of the Retail Leases Amendment (Review) Act 2017 (2 of 2017 - NSW) (the Amending Act), which was assented to on 1 March 2017. The Amending Act will introduces a significant range of changes to the 1994 Act that are set to have an impact on both the landlords and tenants of retail premises in the state.

The Major Changes

These changes are important particular to small business as the 1994 Act applies to the majority of retail shop leases in NSW  with some specific exceptions being leases for or exceeding a term of 25 years and shops having an area of 1000 square metes or more for rent.

Some of the major changes are:

No minimum term: The legislation removes the requirement for a "minimum term of five years". In his second reading speech the Minister for Small Business said:

"The Government is committed to reducing red tape for industry. By repealing the minimum five-year term, streamlining assignment and disclosure processes and clarifying provisions, the New South Wales Government is reducing red tape for the retail leasing industry."

Undisclosed outgoings limited: As a result of the Amending Act landlords will have to make more detailed disclosures to their tenants regarding contributions to outgoings and tenants will not be liable to pay outgoings that were not disclosed in the disclosure statement - the Ministers second reading speech stating:

"The amendments make it clear that tenants are not liable for undisclosed outgoings other than an outgoing in the nature of a tax, rate or levy that is imposed by any Act after the lessor's disclosure statement if given. Advertising and promotion costs are not outgoings for this purpose. The bill[Amending Act] legislates that if the lessor's disclosure statement provides an estimate of the amount of an outgoing and there was no reasonable basis for the estimate, the tenant's liability for the outgoing will be limited to the estimated amount. . . . Future increases in the outgoing will be limited by reference to the estimated amount—for example, the cost from the previous year."

Right to compensation: The Amending Act makes changes for tenants who exercise the right to terminate in the first six months of their lease term because the landlord  failed to give a disclosure statement or the disclosure statement was defective. Such tenants will now be entitled to recover compensation from landlords for the reasonable costs incurred in entering into the lease, including fit-out costs. The Ministers second reading speech explains the change as needed because under the current 1994 Act a tenant's only alternative for improper disclosure is to "walk away" from the lease and all the investment they have put into it within the first six months - the result being that if a tenant walks away the landlord benefits from the fit-out work, funded by the tenant, as they can charge a new tenant a higher rent without compensating the first tenant for their lost investment.

Turnover Rent Online - Transactions Excluded: The revenue from online transactions as a result of the Amending Act will be excluded from the turnover rent payable by a tenant except where the goods or services are delivered or provided from the retail shop or where the transaction takes place while the customer is at the retail shop. Further, a tenant will not be required to disclose information about their online transactions to landlords except where the goods or services are delivered or provided from the retail shop or where the transaction takes place while the customer is at the retail shop.

Market Stalls Excluded: The Amending Act clarifies that the 1994 Act does not apply to market stalls ". . . unless the market is  a permanent retail market".

Uses Excluded: The leases for premises that are used only for certain uses are excluded from the operation of the 1994 Act. Examples of this are ATMs, vending machines, communication towers, public telephones, children's ride machines, internet booths and certain storage uses.

Demolition of Premises: The provisions relating to this are made clearer by the Amending Act providing that the demolition provisions under the 1994 Act apply if only part of the building is proposed to be demolished; and that termination of a lease on the grounds of proposed demolition is only permissible when demolition requires vacant possession of the shop.

Registration and Return of Documents: Retail leases for a term of more than three years must be registered by the landlord and landlords will be obliged to provide a signed lease to tenants within three months of it being returned to them, although their are some permitted delays, for example, obtaining consent to a mortgage.

Other amendments include the prohibition of mortgagee consent fees being recovered by landlords and an increased jurisdictional monetary limit for the Civil and Administrative Tribunal (the Tribunal) from $400,000 to $750,000 thereby increasing the number of claims that may be heard by the Tribunal.

Reaction to the Changes

The legislation has been praised by the Australian Retailers Association (the ARA), through Director Russell Zimmerman who is reported as saying that:

“The amended Act will give retailers a better understanding of retail centre values and side deals, ensuring leasing costs are transparent for both large and small retail businesses, . . . These significant changes will ensure greater transparency and certainty about retail lease deals during negotiations and simplify the process of transferring a retail lease.”

The ARA's support for the legislation has also been endorsed by the Pharmacy Guild’s NSW Branch who are reported as saying through NSW Branch President Rick Samimi: 

“We commend the NSW Government for passing this package of reforms which seek to improve transparency and fairness for landlords and retail tenants.”

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.

Sources:

Retail Leases Amendment (Review) Act 2017 (2 of 2017) [NSW] and the Bill and Supporting material as reported in the TimeBase LawOne Service

Changes to lease legislation in NSW will clarify some issues around community pharmacy leases and give owners more certainty, says the Guild

Hate your landlord? This could change that

Related Articles: