Key Changes to the Retail Leases Act – 1 July 2017

Dean Claughton

On 1 July 2017, several key changes were made to the Retail Leases Act in New South Wales that effect both landlords and tenants around the state. These changes have been in draft form for a substantial amount of time, and so it was no surprise when the legislation came into effect.  A summary of the key changes are outlined below.

Minimum 5 year term

Under the prior version of the Act, all retail leases had to go for a period of at least 5 years, unless a section 16 certificate was signed by the tenant's solicitor (waiving the 5 year requirement). The aim of the minimum term was to ensure that all tenants had enough time to establish their business and give them security of a long term lease. On the flip side, if a tenant's business did not go as planned, they were then liable for 5 years worth of rental (even though they may have only traded for 2 years).  As this section made tenants liable for a long period, it has been repealed, meaning that a retail lease will go for the term that is negotiated at the start of the leasing process.

Disclosure of Outgoings

With the recent changes to the Retail Leases Act, landlords and their solicitors will need to be more careful when estimating the outgoings shown in the disclosure statement. Under the new changes, tenants will not be liable for outgoings which are not disclosed in the disclosure statement, and along with that, if the estimate of outgoings is less than the actual outgoings incurred by the landlord, then unless there is a reasonable explanation for this, the tenant will only be responsible for the estimated (lower) amount.

Copy of lease being provided

Under the new provisions, a landlord and/or their solicitor, must provide a copy of the fully signed lease to the tenant within 3 months of receipt from the tenant. Under the previous Act, there was no timeframe for this. This new provision puts a timing obligation on the landlord and forces them to sign a lease quickly.

Compulsory registration

Under the new provisions of the Act, a lease must be lodged for registration within 3 months of it being received from the tenant. Again, this puts an obligation on the landlord to sign the lease quickly. It also puts pressure on the landlord's mortgagee to produce the title deed (if required) to register the lease. Failure to do this by the landlord may result in penalties being applied.

Return of Bank Guarantees

Under the changes to the Act, landlords must return bank guarantees to tenants within 2 months from the tenant finalising their obligations under the lease. Previously, landlords could hold onto bank guarantees indefinitely, effectively stopping tenants from using those funds to pay for fitout in their new premises or paying off an old debt.  These changes force the landlord's hand, and ensure that tenants are able to use their funds once the lease obligations have been satisfied.

Mortgagee's Consent

The provisions of the previous Act were unclear as to whether the tenant or the landlord would pay the landlord's mortgagee costs (in most leases outside of the Act, it was always the tenant who would pay). The new provisions clarify this and make it clear that the landlord is to pay these costs.

Rectification of Leases

The power of NCAT (the tribunal) has been significantly expanded so that they can make decisions around rectification of leases (rather than having to apply to the NSW Supreme Court). NCAT can now make orders, provided they are satisfied, about:

  1. Correcting an error or admission in a retail lease; and
  2. Giving effect to the intention of the parties.

Under the previous regime, parties had to apply to the Supreme Court and would have to expend significant money in making that application. Now that NCAT has those powers, applications will take significantly less time and cost a lot less money for both landlords and tenants.

Jurisdictional Limit

NCAT can now hear retail leasing disputes where the claim is less than $75,000. This limit has been increased, which again means that more hearings will be done by NCAT and will mean quicker and more cost effective outcomes for both landlords and tenants alike.

As you can see from the above, a lot of the changes made to the Retail Leases Act do favour tenants and put significant time restrictions on landlords to perform their duties. All lawyers, landlords and tenants need to take note of these changes and significant penalties can apply should you fall foul of the new provisions.

For more information, contact:

Dean Claughton, Associate
Phone: +61 2 9895 9276
Email: dclaughton@colemangreig.com.au

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