On 22 September 2020, the Retail Leases Amendment Act 2020 (Vic) (“Amendment Act”) came into force.
The Amendment Act created new rights and obligations to important retail leasing processes governed by the Retail Leases Act 2003 (Vic) (“the Act”). It is imperative that both landlords and tenants are aware of these key changes to avoid any consequences and loss of entitlements regarding their existing leases and new leases.
This article summarises these changes and will focus on the new process for further lease terms.
What are the key changes?
A brief summary of the key changes are:
1. Fit out installations and Essential Safety Measures
The landlord and tenant can agree that the tenant will be responsible for the cost of installations relating to fit out of premises, repairs and maintenance of essential safety measures (“ESMs”) in the form of outgoings (this may include fire protection items such as smoke detectors, water sprinklers and the annual inspection). This means that retail leases can contain clauses allowing landlords to recover the cost of ESMs from tenants. Significantly, this change applies to both new leases and existing leases. However, this is only possible where the lease and disclosure statement or annual estimate of outgoings enables this. If so, the costs of ESMs may only be sought from a tenant from 23 September 2020 (they must not be backdated).
2. Disclosure Statement
The landlord must provide the tenant with a disclosure statement and a copy of the proposed lease at least 14 days before the commencement date of the lease (this was previously at least 7 days). If a landlord fails to deliver the documents in this timeframe, the term of the lease is taken to commence 14 days after the documents are provided to the tenant.
3. Notifying the tenant of any lease changes
The landlord must notify the tenant if the proposed lease given to the tenant contains any changes to a previous copy of the lease that the tenant had received. Previously, this was only required for substantial changes to the lease. If the landlord fails to notify the tenant of the changes, a fine may be imposed on the landlord.
4. Security Deposits
The landlord must return security deposits to tenants within 30 days after the lease ends, when the tenant has performed all of its obligations under the lease. Previously, landlords had to return security deposits ‘as soon as practicable’ after the lease ended. This change applies to both new leases and existing leases.
5. Notices and timeframes for exercising options to renew the lease
The landlord must provide significant additional information to the tenant, prior to the tenant exercising an option to renew the lease for a further term. Failure to deliver information within the required timeframe has consequences for the landlord. Notably, the timeframe to give notice about exercising an option has been reduced (from at least 6 months to no less than 3 months prior to the last date to exercise the option). Importantly, these changes apply to new leases and to existing leases, unless the last date to exercise the option is earlier than 1 January 2021. We discuss these new obligations in greater detail below.
6. New rights for tenants
Tenants have new rights. A tenant may have the right to request an early rent review, prior to exercising an option to renew the lease for a further term. A tenant may have the right to a 14 day cooling off period if they have exercised the option and had a change mind. We discuss these new rights in further detail below.
What information must landlords provide tenants regarding further terms?
The landlord must give the tenant certain information in a written notice (“the Option Notice”), by no later than 3 months’ before the date on which the tenant is entitled to exercise the option to renew the lease.
The Option Notice must contain the following:
- the date by which the option to renew the lease can be exercised,
- the rent payable for the first 12 months of the renewed lease,
- the availability of an early rent review,
- the availability of a cooling off period, and
- any changes to the previous disclosure statement given to the tenant (excluding any changes regarding rent).
If the landlord does not give a compliant Option Notice to the tenant within the required timeframe, the date on which the tenant is entitled to exercise the option to renew is extended by 3 months after the tenant receives a compliant Option Notice. Where the extended date is after the lease term ends, the lease continues until that date on the same terms and conditions as before until lease term ends.
The tenant must notify the landlord in writing as to whether it exercises its option to renew on or before the last date to exercise the option.
What is the Early Rent Review Process?
The tenant can request an early rent review for market rent by making a written request to the landlord within 28 days after the landlord gives the tenant the Option Notice.
If the landlord and tenant cannot agree on the market rent, a specialist retail valuer can be appointed. Significantly, the last date for the tenant to exercise the option to renew the lease will be extended for 14 days after the date on which the tenant is notified of the specialist retail valuer’s market rent determination (if that date is not at least 14 days before the last date to exercise the option). The lease will continue on the same terms and conditions during the extended term.
If the tenant does not exercise the option following the specialist retail valuer’s market rent determination, and the last date for the tenant to exercise the option falls on a date after the lease term ends, the lease will continue on the same terms and conditions to that date, unless the parties agree otherwise.
What are the Tenant’s cooling off rights?
If the tenant has a change of mind after they have exercised their option to renew the lease but not requested an early rent review, they have a 14 day cooling off period to give written notice to the landlord that they no longer want to exercise the option to renew the lease (“Cooling Off Notice”). The 14 day cooling off period ends 14 days after the day on which the tenant exercises the option.
The Cooling Off Notice has multiple impacts. It extends the term of the lease by 14 days, the lease is taken as not having been renewed, and the tenant is unable to exercise the option. Ultimately, if the tenant has another change of mind and wants to remain at the premises, a new lease may need to be negotiated.
What should Landlords and Tenants do going forward?
Landlords should familiarise themselves with these changes and update their retail leasing documentation and processes to ensure they comply with the Act. They should also review the documents regarding ESM costs.
Tenants should also familiarise themselves with these changes and ensure that they receive compliant documents from landlords before starting a new retail lease. They should also familiarise themselves with changes regarding the exercise of an option to renew the lease.
Where can I find further details?
The full Retail Leases Act containing the changes can be found here.
We have an Accredited Specialist in Property Law and we are well equipped to advise you of your rights and obligations. Should you have any questions on how the amendments may impact you, or if you need assistance reviewing and updating processes and documents, please contact us on 1300 205 506.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
Liability limited by a scheme approved under Professional Standards Legislation.
Andre is a Principal of Sharrock Pitman Legal.
He heads our Property Law Group and is an Accredited Specialist in Property Law (accredited by the Law Institute of Victoria). He also deals with Commercial Law. For further information, contact Andre Ong on his direct line (03) 8561 3317.