On 10 May 2016, Queensland Parliament passed the much anticipated Retail Shop Leases Amendment Bill 2015 and shortly after received Royal Assent on 25 May 2016 as the Retail Shop Leases Amendment Act 2016 (Qld) (“the Amendments”) which introduces several key changes to the current legislation Retail Shop Leases Act 1994 (Qld) (“the Act”). Both tenants and landlords should be wary of the changes and consider how this may affect their current and future retail shop leases. In this article we have summarised a few of the key changes.
Changes to when a lease and assignment is entered into
Under section 11 of the current Act, a retail shop lease is ‘entered into’ on the date the lease becomes binding on the landlord and lessee, or on the date the tenant enters into possession of the leased shop (whichever is the earlier of the two).
Under the new Amendments, a lease may now be ‘entered into’ on the earliest of the following dates:
- the lease is signed by all of the parties to the lease;
- the tenant enters into possession of the retail shop under the lease;
- the tenant first pays rent under the lease (other than as a deposit to secure the premises for the lease).
Furthermore, the Amendments also introduce a new section 11A which defines when an assignment of a retail shop lease is ‘entered into’. An assignment will now be ‘entered int’o the earliest of:
- first date by which a deed of assignment is signed by the landlord, assignor and assignee; or
b)the date the assignee (with the consent of the landlord) enters into possession of the retail shop.
These changes provide further clarity and subsequent protection for both the landlord and the tenant as to when a lease agreement has been ‘entered into’.
Certain leases now excluded by the Amendments
Clause 5 of the Amendments now specifically exclude certain leases from being a retail lease. Namely:
- all leases with a floor areas of more than 1000m2. The current Act only excludes leases of retail shops with a floor area of more than 1000m2by a listed corporation or a subsidiary;
- Lease premises which are located on a level a multi-storey building, or standalone build where 25% or less of the total area is retail. This means that a non-retail premises located on a floor of a shopping centre is not a retail shop if 75% of the total lettable area of that floor is used for professional or commercial offices;
- An automatic teller machine;
- Vending machines; and
- Advertisement displays.
Under the Amendments, the landlord now has to give a draft copy of the lease a disclosure statement at least 7 days before a prospective tenant enters into the lease. This 7 day requirement may, however be waived by the tenant
Additionally, when the tenant exercises their option to renew under an existing retail shop lease, the landlord will be required to give a current disclosure statement within 7 days of receiving the tenant’s notice. The tenant may then, within 14 days, provide the landlord written notice withdrawing their renewal.
Disclosure obligations have also been extended to potentially require sublessors and franchisors (as the head lessee) to provide a disclosure statement.
These amendments provide significant protections to prospective tenants to ensure they are fully informed on all matters of disclosure prior to renewing or entering into a binding lease.
Release of Assignor Guarantors
Under section 50A of the current Act, when an assignor and the assignee of a retail shop lease have complied with their disclosure obligations under the Act, they are released from any liability arising from the default of the assignee. Clause 51 of the Amendments now also extends this limitation of liability to the guarantors of the assignor as well.
Changes to Lease Outgoings
The Amendments introduced several changes to the definition and the scope of the ‘outgoings’ which the tenant may be liable to pay under the retail lease. For example, the definition of outgoings is to specifically exclude the payment of an excess in relation to the landlords insurance policy. Outgoing estimates and audited statements will also required to provide a breakdown total of the management fees and administration costs of the centre.
The tenant will be able to withhold payment of these outgoings until an outgoing estimate or audited statement is provided to them by the landlord.
As a further cost saving to the tenants, tenants will no longer be required to pay any mortgagee consent costs incurred by the landlord, unless a finalised lease is prepared and the prospective tenant does not sign the lease.
Refurbishment Requirements to be fully Described
A retail shop lease requiring the tenant to refurbish or refit the leased shop is void with the introduction of 50B in the Amendments unless it gives general details on the nature, extent and timing of the refurbishment or refitting required. This is a significant change given that many disputes would arise previously over unreasonable expectations set by the Landlord for refurbishment/refitting required to be done at the tenant’s expense. Accordingly, landlords entering into new leases must consider whether their refit/refurbishment clauses accurately specify the tenant’s refurbish/refit to the premises.
Requirement to make a Marketing Plan Available
Under the newly introduced section 40A of the Amendments, If the lease requires the tenant to pay amounts to the landlord for promotion and advertising, the landlord must now provide a marketing plan which outlines the tenants proposed spending for that accounting period at least one month before the start of that accounting period.
This change further informs retail shop lease tenants on the upcoming advertising costs they will be required to pay, and seeks to ensure that they will not be hit with unexpected costs which they cannot meet.
Recovery of Lease Preparation Costs
The Amendments introduced section 48(3) which provides that the prospective tenant is liable for the landlord’s reasonable expenses for the preparation of a final lease in certain circumstances if the tenant does not proceed with the lease. The inclusion of this new section further protects the Landlord from incurring excessive expenses for leases in reliance on the tenant’s representation but never eventuated.
The Amendments are expected to come into effect around November this year and will apply to all retail shop leases entered into or renewed before or after 28 October 1994 (subject to several excepted provision in the Amendments).
For more information regarding retail shop leases
Please do not hesitate to contact our Business Development Team on (07) 3252 0011 to arrange an appointment with one of our experienced commercial lawyers.