SA Introduces Bill To Amend Retail and Commercial Lease Legislation In Response To Moss Review

Thursday 11 July 2019 @ 1.18 p.m. | Corporate & Regulatory | Trade & Commerce

The Retail and Commercial Leases (Miscellaneous) Amendment Bill 2019 (SA)(the Bill) was introduced into the SA Parliament on 3 July 2019 by the SA Attorney-General, the Honorable V A Chapman (the Attorney-General). The Bill seeks to amend the Retail and Commercial Leases Act 1995 (SA) (the Act), and to make related amendments to the Landlord and Tenant Act 1936 (SA) (the LT Act), in order to make processes under both Acts less ambiguous, and improve the transparency of the legislation, consistent with industry expectations. 

Background Leading to the Current Bill

According to the Attorney-General's second reading speech, the Bill was introduced to regulate the leasing of retail shops and replace Part IV of the LT Act, with the primary purpose being protection of the position of lessees of retail shop premises paying rent below a specified threshold.

The State Government and Opposition committed to undertake a review of the Act in 2013. A formal independent review process was initiated by the Small Business Commissioner, on behalf of the then Minister for Small Business, in December 2014. This public consultation and review process saw the release of discussion papers and the receipt of submissions from a broad range of organisations, industry groups and individuals. From these submissions, the Moss Review (the Review) was conducted by Retired District Court Judge, Mr Alan Moss. The Review was tabled in Parliament on 24 May 2016, and its release was followed by the invitation of interested parties to provide their views on the 20 recommendations made by the Review, and to add any further comments or suggestions. This invitation saw a further 60 submissions.

The Review and the process that followed lead to the creation of the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017 (SA)(the former Bill), which was introduced in the Assembly by the former Government on 5 July 2017, and passed the Assembly on 28 September 2017. The Bill was read a first time in the Council on 17 October 2017, but lapsed when Parliament was prorogued prior to the last State Election in March 2018.

According to the Attorney General in her second reading speech, the Government has:

". . . considered the amendments proposed in the former Bill and has accepted those amendments as the basis for the current Bill."

Purpose of the Current Bill

The amendments contained in the Bill build on the existing protective measures for lessees within the Act by:

  • clarifying important aspects of the legislation, for example, by making it explicit that retail shop leases can "move into" and "out of" the Act's jurisdiction by means of adjusting the "rent threshold" (which is what triggers the operation of the Act), and making certain that various sums such as the rent threshold and security bonds are clearly understood to be exclusive of GST;
  • clarifying arrangements for the provision of information to lessees entering into leases, for example, draft leases and Disclosure Statements, as well as making clearer various terms and definitions to improve certainty, which is also done by removing redundant terms;
  • increasing the various maximum penalties within the Act. which have not been reviewed since 1995 - the Bill proposes an increase of 60%, which is broadly in line with the 68% movement in the CPI over the 20 year period from 1995 to 2015.

Further, maximum penalties of $8,000 have been proposed for two new offences under the legislation; permitting the Government to exclude certain "classes" of leases and licences from the application of the Act; and permitting the Small Business Commissioner to certify exclusionary clauses, and exempt leases and licences from the Act.

Key Amendments in Detail

Clause 4 amends section 3 of the Act by inserting definitions of "GST" and "GST law" consequential on the amendments to the Act in relation to rent and rent threshold. The clause also adds definitions for the terms "public company" and "subsidiary" which are used in the proposed new section 4 of the Act - these terms are to have the same meaning as in they have in the Corporations Act 2001 (Cth). A new subsection setting out the meaning of "prescribed threshold" in relation to the rent payable under a retail shop lease is also inserted. The prescribed threshold of rent is defined to mean the amount of ". . . $400,000 per annum or such greater amount that may be prescribed by the regulations". The amount of $400,000 is the same amount as is currently prescribed by the regulations for the purposes of section 4 and the definition also makes clear that the threshold amount does not include GST.

Clause 5 proposes changes to section 4 by setting out the circumstances in which the Act will or will not apply to a retail shop lease. In addition to re-enacting the provisions in the current section, the proposed section re-enacts and amends the provision currently in section 4(2) to make it clearer, and also provide for additional circumstances in which the rent threshold may be a determinative factor in whether or not the Act applies to a retail shop lease and to include two new circumstances in which the Act will or will not apply to a retail shop lease.

The proposed section 4(2)(a) provides that the Act does not apply to a retail shop lease at any time the rent payable under the lease exceeds the prescribed threshold (namely, $400,000 p.a.). This applies to leases entered into before or after the commencement of the provision, and regardless of whether the Act does or does not apply in relation to the lease at the time the lease is entered into. This means that the Act may apply or cease to apply to a particular lease during the term of the lease, either as a result of a change in the amount of rent that may be payable (for example, as a result of a rent review), or as a result of any increase in the amount of the prescribed threshold (by way of a regulation under the Act).

The proposed subsection 4(3) provides a mechanism whereby the parties may prevent the Act ever applying to the lease in circumstances where the Act would otherwise apply because of the provisions in proposed section 4 (2)(a). The proposed subsection 4 (4) provides two circumstances in which the provisions in proposed subsection 4(3) do not apply. The first is to or in respect of a lease entered into before the commencement of the proposed provision and the second is to the renewal of a lease on or after the commencement of the proposed provision pursuant to a right or option conferred by a lease entered into before that commencement. 

In her second reading speech the Attorney General, speaking about Clause 5 of the Bill, states:

"The 2017 decision of Justice Stanley in Diakou Nominees Pty Ltd v Gouger Street Pty Ltd & Ors [2017] SASC 72 (the Diakou case) provides guidance on the interpretation of section 4 where the lease rent was originally above the threshold (i.e. the Act did not apply to the lease), but has now fallen below the threshold because the rental threshold was revised and increased to $400,000 on 4 April 2011. Justice Stanley found that once the annual rent did not exceed the prescribed sum, the Act should apply. The proposed amendments to section 4 of the Act take account of the findings in the Diakou case, and in addition provide for the circumstances in which the Act will or will not apply to a lease, depending on a range of factors including rent decreases, prescribed threshold increases and the type of lease entered into."

The Bill includes a proposed section 4(2)(f) excluding bodies corporate whose securities are listed on a stock exchange outside Australia from the application of the Act - a provision based on the equivalent provisions in Victoria and New South Wales, which applies to leases entered into after the commencement of section 4(2)(f).

Clause 6 inserts a new section 6A giving the Valuer-General the power to conduct a review prescribed threshold for the purposes of the Act (being the threshold amount of rent at which the Act will cease to apply to a particular lease). The first review is to be conducted within two years of the commencement of section 6A and every five years after that.

Other Technical and Related Amendments

Further amendments include:.

  • An amendment to address the complex issue arising from an increase to the rental threshold in 2010 made by the regulations which, according to the Attorney General, caused great difficulties for some landlords and tenants with long term leases. To address this the Bill proposes an amendment to make it ". . . express within the Act that a registered lease, which at the time of registration falls outside of the rental threshold, shall remain outside the Act regardless of any increase to the threshold which would bring the lease within the scope of the Act".
  • An amendment seeking to ensure that public companies limited by guarantee and registered with the Australian Charities and Not for Profit Commission are not excluded from the application of the Act, thereby ensuring that this type of lessee is still afforded the consumer protections provided under the Act. If, after the commencement of this amendment the status of a registered charity changes, the registered charity may subsequently fall within or outside the application of the Act (see proposed section 4(6)).
  • An amendment which increases the security from an amount not exceeding four weeks’ rent to an amount not exceeding three months’ rent, which is based on the recommendation set out in the Moss Review and feedback received from key stakeholders and industry groups.

Attorney's Comment on Bill's Purpose

In concluding her second reading speech, the Attorney General said that the Bill was founded on the work of the Moss Review and sought to improve processes under the Act by making it less ambiguous, more transparent and consistent with industry expectations: 

"I reiterate that the Government’s Bill acts on work undertaken by Mr Moss previously, and extensive submissions and work of the Small Business Commissioner, his office and the industry. I trust this reform will make processes under the Act less ambiguous and improve the transparency of the legislation, which is consistent with industry expectations."

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 and Commercial Leases (Miscellaneous) Amendment Bill 2019 (92 of 2019) [SA], second reading and explanatory statement available from TimeBase's LawOne Service.

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