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Proposed changes to the Retail Leases Act

Last year, the Retail Leases Amendment Bill 2019 (the Bill) was introduced to the Victorian Parliament. If passed, the Bill will make substantial changes to the law relating to retail leases in Victoria. Some of those changes will benefit landlords and others will benefit tenants.

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• Allows landlords to recover costs for essential safety measures from retail tenants. This applies to existing leases;

• Requires landlords to return security deposits within 30 days of a lease ending;

• Allows a tenant to request an early market rent review, before an option to renew is exercised;

•Gives the tenant a 14 day ‘cooling-off period’ to avoid being bound by the exercise of an option to renew if the tenant has not requested an early market rent review;

• Increases the time within which landlords must give disclosure statements and proposed leases to new tenants;

• Requires landlords to give a more comprehensive disclosure statement on renewal; and

• Requires landlords to give tenants more detailed information before the last date an option to renew may be exercised.

Essential safety measures (ESM)

In May 2015, the President of VCAT issued an advisory opinion that a landlord could not recover from a tenant costs a landlord incurs in complying with the landlord’s obligations under the Building Act in respect of ESM.

The Bill reverses this position and provides that a landlord may recover from a retail tenant ESM costs if the tenant has agreed to pay those costs in the lease.

Recoverable costs include the capital costs of installing equipment and fixtures to satisfy ESM requirements.

Curiously, the right of a landlord to recover those costs is only given under the Bill to landlords under retail premises leases and not landlords under other commercial leases.

Further, the Bill provides that this amendment will apply to existing leases.

There is, however, no saving provision for disputes regarding ESM costs that may be subject to proceedings at VCAT or which may have already been decided by VCAT in favour of tenants.

The Bill provides that a landlord must return to a tenant a security deposit within 30 days after the lease ends if the tenant has performed all its obligations under the lease. Currently, a landlord must only return a security deposit 'as soon as practicable'. Once a lease ends, landlords will need to promptly determine if the tenant has complied with all its obligations, including its make good obligations.

Early rent review

The Bill provides that if a lease contains a market rent review, a tenant may request an early rent review within 28 days after the landlord gives the tenant all of the information required in respect of the option to renew (see below).

When a tenant requests an early rent review, the last day the tenant may exercise its option is extended to 14 days after the tenant receives written notice of the valuer’s determination of the market rent.

Cooling-off

The Bill provides a tenant with a 14 day cooling-off period after a tenant exercises an option to renew.

Within the cooling-off period, a tenant may notify the landlord that it does not wish to exercise its option to renew if the tenant has not requested an early market rent review.

If a tenant gives that notice during the cooling-off period then the option to renew lapses and the lease term is extended by 14 days.

Options for renewal - Notice to tenant

No later than 3 months before the last date an option for renewal may be exercised, the landlord must notify the tenant of:

• The last date by which the option to renew may be exercised;

• The rent payable for the first 12 months under the renewed lease term;

• The availability of an early rent review under the Act;

• The availability of a cooling-off period under the Act; and

Also, if there is any change to the proposed lease, the landlord must notify the tenant of those changes. If the Landlord fails to do so, it risks substantial fines (up to $8,261 for individuals and up to $41,305 for corporations).

Disclosure Statements - Lease renewals

The Bill provides that on renewal, the landlord must give the tenant a disclosure statement that either:

• Sets out changes to the information set out in the last disclosure statement given to the tenant; or

• Any changes to the last disclosure statement given to the tenant.

If the landlord fails to give to the tenant all that information by the no later than 3 months before the last date an option for renewal may be exercised and the lease term may be extended substantially (the 'extended period').

The Bill provides that the rent payable for the extended period is to be:

• Where a tenant requests an early rent review, the rent then determined if it is less than the rent last payable during the lease term; or

• Where a tenant has not requested an early rent review, the rent set out in the landlord’s notice, if it is less than the rent last payable during the lease term.

Disclosure Statements - New leases

Currently, the landlord must give the tenant a disclosure statement and the proposed form of lease 7 days before the tenant enters into the lease.

The Bill extends this period to 14 days before the tenant enters into the lease.

If the landlord fails to give these documents 14 days before tenant signs the lease, then the lease term is deemed to start 14 days after the documents are given. • Is not more than 3 months old.

This change will see landlord’s preparing more comprehensive disclosure statements on renewals than is currently required.

Further updates

The Bill may yet be amended before it is passed by Parliament. Accordingly, further updates relating to the Bill will be issued when necessary.

Further exclusions from retail premises leases

The Minister for Small Business also determined that retail premises do not include premises that are used wholly or predominantly for agricultural, pastoral, horticultural or apicultural activities, including grazing and agistment.

More information

To discuss the proposed changes to the Retail Leases Act, or for property and real estate advice, please contact:

Morgan Scholz - Head of Property T +61 3 8600 8890 E mscholz@kcllaw.com.au

Geoff Kliger - Senior Special Counsel and Accredited Property Law Specialist T +61 3 8600 8878 E gkliger@kcllaw.com.au