Changes to the Retail Leases Act – What it means for Landlords
On 23 September 2020, there were a series of changes to the Retail Leases Act 2003 (“the Act”), which governs the majority of commercial leases.
Whilst much of the commentary concerning the amendments suggested that the changes were not overly significant, many of these amendments are important.
We have detailed a few of the amendments we believe are important to landlords, however, this article is not exhaustive.
We encourage all of our landlords and commercial real estate agent associates to familiarise themselves with the changes detailed below, as non-adherence to new requirements may lead to troublesome and protracted disputes.
Disclosure Obligations for Retail Leases Act (New Lease)
A significant amendment to the Retail Leases Act is that the commencement date of a new Lease may only start 14 days after the final copies of the Disclosure Statement and Lease are provided to the Tenant. If the lease is provided to the tenant, less than 14 days before the start date, the start date will be deemed to be 14 days after the lease and disclosure statement are provided to the tenant. In practical terms, this means the commencement date can be pushed back from the date you intend the lease to start.
Unfortunately, this requirement may have undesirable commercial impacts, such as where parties may have agreed to a lease in a short time frame and a tenant is eager to move into the property as soon as possible. It is important to seek legal opinion in these circumstances if you are concerned about the validity of your commencement date.
Disclosure Obligations (Upon renewal)
Under the new amendments, a landlord must provide the tenant with a written notice containing certain information, no less than 3 months before prior to the last date for exercise of the further term.
This notice must contain the following:
- The date by which the option to renew the lease may be exercised;
- The rent payable for the first 12 months under any renewed term of the lease;
- The availability of an early rent review;
- The availability of a cooling-off period; and
- Any changes to the most recent disclosure statement provided to the tenant, other
then any changes in relation to the rent.
Failure to accurately detail this information on time will result in a defective notice which may have serious consequences for the Landlord, including an extension of the current term of the lease and termination. It is therefore important that landlords and agents diarise relevant dates in their forward calendars to ensure the appropriate notice is issued on time. It is essential that you seek legal guidance if you are unsure if your notice is accurate.
Tenant’s Cooling Off Period on Renewal
As noted above, a 14-day cooling-off period now applies after the tenant’s decision to
exercise a further option. Landlords and agents should therefore be wary of this period.
Previously a tenant would be held to the exercise of their option if they had chosen to take it up.
Essential Safety Measures
One of the changes to the Act that is landlord friendly is that landlords are now entitled to charge essential safety measures (ESM) as an outgoing to the tenant provided that the terms of the lease state that the landlord is permitted to claim these costs and the disclosure statement provided by the landlord lists them.
Essential Safety Measures are costs associated with safety features at a building such as smoke detectors, sprinkler systems, fire extinguishers, fire exit signs and annual safety inspections (this is not an exhaustive list). Previously this was not allowed. However, landlords are not entitled to recover ESM costs they have paid prior to the changes to the Act became law.
The amendments to the Retail Leases Act have had practical commercial consequences. Proper calendar management and organisation, along with seeking legal advice, can ensure that you have a properly executed lease. Contact our Will Elder today if you have any queries arising from this article. You may also benefit from reading our guide to the covid-19 leasing code of conduct.
Will has developed a broad commercial practice in which he advises clients on business acquisition and sale, commercial agreements, commercial and retail leasing, and commercial litigation. Learn more about Will's legal experience.