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NSW Retail Leases Act amendments – Effective from 1 July 2017

Not since 1994, have there been such radical amendments to the NSW Retail Leases Act (RLA).

Coming into force on 1 July 2017, a number of key changes will alter the balance of legislated requirements for Retail Leases.

It is important that both Landlords and Tenants are aware of the amendments and be prepared for the changes for any new Leases. There are some changes that will apply retrospectively, however most will only apply to leases entered into after the commencement date.

The changes come after extensive consultation with the industry and extensive submissions made the Office of the NSW Small Business Commissioner, before the Bill was finally debated in the NSW Parliament. It passed in February unamended.

Key changes include:

Changes protection for the Tenant

Turnover exclusion – the exclusion of ‘revenue from online sales’ from turnover rent calculations. This will be an interesting amendment to see in effect as the term ‘online sales’ is not defined.

Online sales platform void – a new provision declaring void a provision in a retail shop lease to the extent it requires the lessee to use an online sales platform of the lessor.

Right to compensation – If a tenant terminates a lease within the first six (6) months due to the landlord’s failure to issue a disclosure statement, or due to a defect in a disclosure statement that is issued, a tenant will be entitled to claim compensation for costs reasonably incurred, including fitout costs Compensation for non-disclosure. This is an express right for a lessee to compensation for costs reasonably incurred.

Additional limitations on outgoings to be recovered – if an estimate is provided in the disclosure statement and that estimate is less than the actual amount payable (and there was no reasonable basis for the estimate), the tenant’s liability will be limited to the estimate.

Owners’ corporations – additional rights for lessees concerning the conduct of an owners’ corporation for shops forming part of a strata scheme.

Return of bank guarantee: A landlord must return a bank guarantee to the tenant within two (2) months after the tenant has performed all its obligations under the lease.

More detailed disclosure – by a landlord in its disclosure statement of any obligation on a tenant to contribute to outgoings, recovery of outgoings that are not disclosed is prevented.

 

Changes for the Landlord

The definition of ‘outgoings’ will now include fees of the Landlord for any additional services they may have provided.

Checks -With approval from the Registrar of Retail Tenancy Disputes (the Registrar), police and security checks can be taken out against a Tenant’s employees.

Disclosure requirements of outgoings – including no requirement for a lessee to pay the amount if it is not disclosed in the lessor’s disclosure statement.

Withhold consent to an assignment: where a retail shop lease has been awarded by public tender, a landlord will be entitled to withhold its consent to an assignment if the assignee fails to meet the criteria of the tender.

Section 35 of the RLA NSW confers protections tenants if the retail shop lease contains a provision allowing a landlord to terminate the lease on the grounds of proposed demolition of the building of which the premises forms part.. Under the changes, the protection will extend to a proposed demolition of any part of the building (as opposed the building in its entirety).

Further, as well as the landlord being required to have a genuine proposal to demolish (under the existing provisions), the landlord can then only terminate if the proposed demolition cannot be carried out practicably without vacant possession of the premises. When a Tenant wishes to terminate on the grounds of proposed demolition, this will only be permissible when the demolition requires vacant possession of the shop.

 

Changes regarding Administrative matters

Specialist valuers – a detailed procedure for the appointment of specialist retail valuers for market rent determinations. The Registrar will be able to appoint specialist retail valuers, so people do not need to go to the Tribunal.

No minimum period – There will no longer be a five (5) year minimum term for retail shop leases, the statutory minimum term has been removed with the deletion of section 16.

Registration of leases – an express requirement to register a lease for a term of 3 years or more within 3 months of execution or return to the lessor. Note the three year period can also be reached by a two year lease with an option to renew of 1 year.

Executed Copy – A landlord must also provide a tenant with a landlord executed copy of the lease within three months from when the landlord receives the tenant executed lease.

The Tribunal can now fix mistakes in leases to reflect the parties’ intentions.

Demolition definition – a new expanded definition of ‘demolition’ for the purposes of demolition notices issued under the Act.

Mortgagee consent fees: A landlord will not be entitled to recover from the tenant any expenses involved in obtaining mortgagee consent.

Security bonds: The Secretary (previously known as the Director-General) will have the power to establish an online retail bond service to facilitate the transition of the existing regime of lodging cash bonds with the Retail Tenancy Unit to an online platform. A disputed security bond now will not be released until after the period for appeal of a judgement has ended.

 

Changes affecting the application of the RLA NSW

Agreement for lease: The RLA NSW will apply to an agreement for lease in the same way that it applies to a lease. Accordingly, a landlord must ensure that it provides the tenant with a lessor’s disclosure statement 7 days before the agreement for lease is entered into. Failure to do so gives the tenant a right to terminate within the first 6 months.

Premises used completely for non-retail purposes will not come under the Act anymore (this will include ATMs, vending machines, public telephones, children’s rides, internet booths, private post boxes and certain storage uses).

Market stalls in a temporary market are not subject to the provisions of the Act and the removal of an unnecessary and confusing exception in the Act that specifies that premises in an office tower above a retail shopping centre are not subject to the Act.

Consent to assignment: When a tenant is seeking consent to assign its lease to an assignee, if the landlord fails to provide that tenant with an updated disclosure statement, the tenant is now required to prepare its own updated disclosure statement which it must complete to the best of its knowledge. Previously, if the landlord failed to provide a copy of the disclosure statement within 14 days, the tenant was relieved from its obligations to provide an updated disclosure statement to the assignee.

 

Changes regarding disputes and issues

Increase in the monetary limit on the jurisdiction of the Civil and Administrative Tribunal from AU$400,000 to AU$750,000 for claims made under the Act, as well as a civil penalty regime for contravention of the Act.

Penalty notice: There is a greater emphasis on the ability for an officer of the Department of Industry, Skills and Regional Development to issue a penalty notice to a person if it appears that the person has committed an offence under the RLA NSW.

If you have any questions in relation to any of the above, please contact our office to arrange an appointment.

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