RETAIL LEASES ACT 2003 (VIC)

Last updated 21 April 2020

 

If you are a landlord or tenant in relation to a “retail premises lease”, the Retail Leases Act 2003 (Vic) probably applies to your lease.  Generally, the Act provides protections for tenants, some of which are fairly rugged, and it is important that you are aware of them.  Summaries and extracts of some of the provisions of the Act are set out below.  This article provides general information only and is not intended to constitute legal advice.  We recommend that you obtain legal advice concerning your specific circumstances.

APPLICATION OF THE ACT - “RETAIL PREMISES”

 

The Act applies to leases of “retail premises”

 

located in Victoria, Australia (as well as sub-leases and agreements to lease in respect of such premises, where or not in writing) entered into or renewed after 1 May 2003, which have a term of one year or more.  “Retail premises” are premises, (excluding any area intended for use as a residence), that under the terms of the lease are used, or are to be used, wholly or predominantly for the sale or hire of goods by “retail” or the “retail” provision of services.  The term “retail” has been given a somewhat technical and obscure meaning by the Courts and it may be advisable to obtain legal advice regarding your specific situation, although usually a commercial approach is adopted.

In the main, the test as to whether premises are “retail premises” is applied at the time the lease is entered into or renewed (but not always).

 

Exclusions.  The following premises are specifically excluded from the definition of “retail premises”:

 

  • Premises where the lease occupancy costs are more than $1,000,000 per annum exclusive of GST, or other amount prescribed by the regulations.“Occupancy costs” include rent (other than rent that is to be determined wholly or partly by reference to turnover); outgoings; costs of advertising and promotional services, including marketing fund contributions; and any other costs of a prescribed kind that the tenant is liable to pay under the lease.

 

  • Premises that are used wholly or predominantly for the carrying on of a business by a tenant on behalf of the landlord as the landlord's employee or agent.

 

  • Premises the tenant of which is a corporation listed on the ASX or on a recognized stock exchange overseas, or a subsidiary of such a corporation.

 

  • Premises exempted by determination of the Minister, currently being:

 

Retail Premises located in a multi-story building.

Barristers’ Chambers Limited Premises.

Fifteen (15) Year Leases.

Melbourne Market Authority Leases.

New Zealand Stock Exchange listed corporations.

Charitable and Community Purposes Leases

 

ENTERING INTO A RETAIL PREMISES LEASE

 

Copy of lease to be provided at negotiation stage

 

A landlord who wishes to offer to enter into a (new) retail premises lease or advertise that retail premises are for lease, must as soon as the landlord or their agent enters into negotiations with a person about the lease, give to that person a copy of the proposed lease in writing and a copy of the information brochure about retail leases here published by the Small Business Commission.  A failure to do so involves a penalty of 50 penalty units (where a penalty unit is currently $165.22, see here).

 

Lease must be in writing and signed

 

A landlord or tenant must not enter into a retail premises lease that is not in writing and signed by all of the parties to it.  A breach involves a penalty of 10 penalty units (where a penalty unit is currently $165.22).  Note, however, that a failure to comply with this section does not make the lease illegal, invalid or unenforceable.

 

Landlord's disclosure statement

 

At least 7 days before entering into a (new) retail premises lease, the landlord must give the prospective tenant:

 

  • a disclosure statement in the form prescribed by the regulations; and

 

  • a copy of the proposed lease in writing.

 

(In relation to a sub-lease, a tenant who has been given a disclosure statement concerning the head-lease is only required to give a sub-tenant a copy of that disclosure statement and details of any changes of which the tenant is aware, or could reasonably be expected to be aware.

 

If a tenant has not been given the disclosure statement before entering into a retail premises lease, the tenant may give the landlord, no earlier than 7 days and no later than 90 days after entering into the lease, a written notice that the tenant has not been given the disclosure statement.  And where the tenant gives the landlord such a notice:

 

  • the tenant may withhold payment of the rent until the landlord gives the tenant the disclosure statement;

 

  • the tenant is not liable to pay the rent from the day on which the notice was given until the landlord gives the tenant the disclosure statement; and

 

  • the tenant may give the landlord a written notice of termination at any time before the end of 7 days after the landlord gives the tenant the disclosure statement.

 

Of course, if the premises are not available for handover on the date specified in the disclosure statement, the tenant is not liable to pay the rent until the premises are available for handover.

 

If a tenant is given a disclosure statement before entering into an agreement for a retail premises lease, the landlord is not required to give a further disclosure statement before subsequently entering into a retail premises lease if that lease is substantially in accordance with the earlier agreement for the lease.

 

Contribution to Fit out Costs

 

A provision of a retail premises lease that requires the tenant to pay or contribute towards the cost of any fit out of the retail premises is void unless the liability to make the payment or contribution was disclosed in a disclosure statement given to the tenant in accordance with this Part.

 

Disclosure Statement must be Complete and Accurate

 

If any information provided by the landlord in the disclosure statement is misleading, false or materially incomplete, or the tenant is not given a copy of the proposed lease at least 7 days before entering into the lease, the tenant may give the landlord a written notice of termination at any time before the end of 28 days after the later of the following:

 

  • the tenant is given the disclosure statement; or

 

  • the tenant is given a copy of the proposed lease; or

 

  • the lease is entered into.

 

If a tenant under a retail premises lease gives the landlord a notice of termination as noted above, the lease terminates 14 days after the notice is given unless the landlord gives the tenant a notice of objection to the termination.

 

Within 14 days after being given the notice of termination the landlord may give the tenant a notice of objection to the termination on the ground that (a) the landlord has acted honestly and reasonably and ought fairly to be excused for the contravention; and (b) the tenant is substantially in as good a position as the tenant would have been in if there had been no contravention.

 

The lease does not terminate if:

 

  • the tenant advises the landlord that the tenant accepts the landlord's notice of objection; or

 

  • the notice is upheld at dispute proceedings; or

 

  • the tenant does not advise the landlord (in writing), within 14 days after being given the notice, whether or not the tenant accepts the landlord's notice of objection.

 

Minimum 5-year term

 

Unless the tenant / prospective tenant obtains an exemption certificate from the Small Business and gives a coy to the landlord, the term of a retail premises lease, including any further term or terms provided for by an option for the tenant to renew the lease, must be at least 5 years or, if the term remaining under any head lease under which the landlord holds the retail premises is 5 years or less, the length of that remaining term less one day.

 

Any option conferred after the lease was entered into must be disregarded.

 

A renewal of a lease is not required to be for 5 years because the minimum 5-year term requirement applied to the lease when it was entered into and the availability of the renewal will have been taken into account in determining the term of the lease.

 

A lease that is entered into contrary to the minimum 5-year term requirement is not illegal, invalid or unenforceable because of that fact but the term of the lease is extended by the period that is necessary to ensure the lease complies with that requirement.  For example, if a lease is entered into for a term of 3 years, its term is extended by 2 years to 5 years.  If a lease is entered into for a term of 2 years with an option for a further 1 year after the initial 2 years, the term of the lease is extended to 4 years (with the option for a further 1 year after the initial 4 years).

 

If the term of a lease is extended to comply with the minimum 5-year term requirement, and no provision is made in the lease for a review of the rent payable in respect of the extended period, then the lease is taken to provide for a market rent review at the beginning of the extended period.

 

Tenant to be given copy of lease

 

Within 28 days, or such other period as is agreed in writing between the landlord and the tenant, after being given a copy of the retail premises lease signed by the tenant, the landlord must give the tenant a copy (which may be a photocopy) of the lease signed by the landlord and the tenant.

 

If the landlord fails to do so, the tenant may give the landlord a written notice of termination at any time within 28 days after (a) the tenant is given a copy of the lease signed by the landlord and the tenant, or (b) entering into the lease, whichever happens last.

 

Key-money and goodwill payments prohibited

 

A landlord must not seek or accept the payment of key-money or any consideration for the goodwill of any business carried on at the retail premises.  Penalty:  50 penalty units.

 

A provision of a retail premises lease is void to the extent that it requires the payment of key-money or consideration for goodwill or has that effect.

 

However, the prohibition does not prevent a landlord from (a) recovering from the tenant costs which the landlord reasonably incurred in investigating a proposed assignee of the lease or sub-tenant of the premises; or (b) recovering from the tenant costs which the landlord reasonably incurred in connection with an assignment of the lease or a sub-lease, and obtaining any necessary consents to the assignment or sub-lease; or (c) claiming goodwill from the tenant in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business; or (d) receiving payment of rent in advance; or (e) securing the performance of the tenant's obligations under the lease by requiring a bond, security deposit or guarantee to be provided from the tenant or any other person (such as a requirement that the directors of a corporation guarantee performance of the corporation's lease obligations); or (f) seeking and accepting payment for plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted; or (g) seeking and accepting payment for the grant of a franchise in connection with the lease being granted.

 

Any payment made, or the value of any benefit conferred, by the tenant and received by the landlord contrary to the prohibition may be recovered by the tenant from the landlord in a court of competent

jurisdiction as a debt due.

 

Security deposits

 

Money paid by the tenant to the landlord as a security deposit for the performance of the tenant's obligations under the lease must be held by the landlord on behalf of the tenant in an interest-bearing account, and the landlord must account to the tenant for interest earned on the deposit but the landlord is entitled to keep the interest and deal with it as money paid by the tenant to the landlord to form part of the security deposit.

 

The landlord is not entitled unreasonably to refuse to accept a guarantee from an ADI (i.e. a recognised Bank) in satisfaction of any requirement to provide security in the form of a deposit, bond or third party guarantee for the performance of the tenant's obligations under the lease.

 

If the tenant performs all of the tenant's obligations under the lease the landlord must return the security deposit to the tenant as soon as practicable after the lease ends.

 

RENEWING A RETAIL PREMISES LEASE

 

Landlord's disclosure on renewal of lease

 

If a tenant has exercised, or is entitled to exercise, a renewal option, or all of the parties enter into an agreement to renew the lease, the landlord must give the tenant a disclosure statement in the prescribed form at least 21 days before the end of the current term of the lease (or where the parties to a retail premises lease enter into an agreement to renew the lease and no later than 14 days after the entering into of the agreement).

 

The disclosure statement must include information that is current from a specified date that is within 3 months before the statement is given.

 

If the tenant has not been given the disclosure statement within the prescribed time limits, the tenant may, no later than 90 days after the expiration of the relevant period, give the landlord a written notice that the tenant has not been given the disclosure statement.  If the tenant gives the landlord a notice (a) the tenant may withhold payment of the rent until the day on which the landlord gives the tenant the disclosure statement; and (b) the tenant is not liable to pay the rent from the day on which the notice was given until the day on which the landlord gives the tenant the disclosure statement; and (c) the tenant may give the landlord a written notice of termination at any time before the end of 7 days after the landlord gives the tenant the disclosure statement.

 

If any information provided by the landlord in the disclosure statement is misleading, false or materially incomplete, the tenant may give the landlord a written notice of termination at any time before the end of 28 days after (a) the tenant is given the disclosure statement; or (b) the lease is renewed, whichever is the later.

 

Option to renew not exercisable

 

If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the only circumstances in which the option is not exercisable is if (a) the tenant has not remedied any default under the lease about which the landlord has given the tenant written notice; or (b) the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults.

 

Obligation to notify tenant of option to renew

 

If a lease contains an option exercisable by the tenant to renew the lease for a further term, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable (a) at least 6 months; and (b) no more than 12 months; before that date but is not required to do so if the tenant exercises, or purports to exercise, the option before being notified of the date.

 

If the landlord fails to notify the tenant within the time specified by that subsection, (a) the retail premises lease is taken to provide that the date after which the option is no longer exercisable is instead 6 months after the landlord notifies the tenant as required; and (b) if that date is after the term of the lease ends, the lease continues until that date (on the same terms and conditions as applied immediately before the lease term ends); and (c) the tenant, whether or not the landlord has by then notified the tenant as required, may give written notice to the landlord terminating the lease from a specified day that is (i) on or after the date on which the term of the lease ends; and (ii) before the date until which the lease would otherwise have continued because of paragraph (b).

 

If an option to renew is exercised after the term of the lease ends (in the circumstances noted above), the lease for the further term commences on the expiry of the previous lease, disregarding for this purpose any period during which that lease continued because of the provisions of the Act noted above.

 

RENT AND OUTGOINGS

 

Costs of alterations to premises to enable fit out

 

The Act contains provisions dealing with the liability for costs associated with carrying out works to alter the premises to enable the proposed fit out of the premises.

 

Payment of rent when landlord's fit out not completed

 

This issue is dealt with in section 31.  Section 31 applies to a retail premises lease if;

 

  • the liability of the tenant to pay rent under the lease starts when the tenant enters into possession of the retail premises (whether or not the tenant is required to enter into possession by a specified date); and

 

  • the landlord has obligations under the lease concerning the fit out of the premises (that is, the landlord is required to provide some or all of the fit out before the tenant enters into possession of the premises).

 

Section 31 provides that the tenant is not liable to pay rent, or any other amount payable under the lease by the tenant (such as an amount payable for outgoings), in respect of any period before the landlord has substantially complied with the landlord's obligations (if any) concerning the fit out of the premises.  Except on reasonable grounds of safety, the landlord is not entitled to deny the tenant possession of the premises merely because the landlord has not complied with those obligations.

 

Rent based on turnover

 

There are provisions dealing with leases where Rent is based on turnover.

 

RENT REVIEWS

 

Rent reviews generally

 

A provision (“ratchet clause”) in a retail premises lease is void to the extent that it purports to preclude, or prevents or enables a person to prevent, the reduction of the rent or to limit the extent to which the rent may be reduced.

 

If there is a prohibited “ratchet clause” or if a rent review clause does not specify how the review is to be made, the rent is to be (a) as agreed between the landlord and tenant; or (b) if there is no agreement within 30 days after the landlord gives the tenant, or the tenant gives the landlord, a written notice specifying an amount of rent for the purposes of the review, the amount determined by a specialist retail valuer appointed by the Small Business Commission as the current market rent of the retail premises.  The landlord and tenant are to pay the costs of a valuation referred in equal shares.

 

Rent reviews based on current market rent

 

If the landlord and tenant do not agree on what the amount of that rent is to be, it is to be determined by a valuation carried out by a specialist retail valuer appointed by (a) agreement between the landlord and tenant; or (b) if there is no agreement, the Small Business Commission; and the landlord and tenant are to pay the costs of the valuation in equal

shares.

 

OUTGOINGS

 

Outgoings - Capital costs not recoverable

 

A provision in a lease is void to the extent that it requires the tenant to pay an amount in respect of the capital costs of (a) the building in which the retail premises are located; or (b) any building in a retail shopping centre in which the retail premises are located; or (c) any areas used in association with a building referred to in paragraph (a) or (b); or (d) plant in a building referred to in paragraph (a) or (b).  However, this prohibition does not operate to render void a provision in a retail premises lease requiring the tenant to undertake capital works at the tenant's own cost.

 

Depreciation not recoverable

 

A provision in a retail premises lease is void to the extent that it requires the tenant to pay an amount in respect of depreciation.

 

Tenant not liable to contribute to sinking fund

 

A provision in a lease is void to the extent that it requires the tenant to make a contribution to a sinking fund to provide for capital works.

 

Interest etc. on landlord's borrowings not recoverable

 

A provision in a lease is void to the extent that it requires the tenant to pay an amount in respect of interest or other charges incurred by the landlord in respect of amounts borrowed by the landlord.

 

Rent etc. associated with other land not recoverable

 

A provision in a retail premises lease is void to the extent that it requires the tenant to pay an amount in respect of (a) rent payable under any head lease under which the landlord holds the retail premises; or (b) rent or other costs associated with any other land including; (i) land on which the building or retail shopping centre of which the retail premises forms part is located; and (ii) land of the landlord used by, or for the benefit of, the tenants conducting business in that building or retail shopping centre or in connection with trading in that building or retail shopping centre.

 

Estimate of outgoings

 

The landlord must give the tenant a written estimate of the outgoings to which the tenant is liable to contribute under the lease that itemises those outgoings.  The estimate of outgoings must be provided (a) before the lease is entered into; and (b) in respect of each of the landlord's accounting periods during the term of the lease (e.g. financial year), at least one month before the start of that period.

 

The tenant is not liable to contribute to any outgoings of which an estimate is required to be given to the tenant until the tenant is given that estimate.

 

Statement of outgoings

 

The landlord must prepare a written statement that details all actual expenditure incurred by the landlord, in each of the landlord's accounting periods during the term of the lease, on account of outgoings to which the tenant is liable to contribute.  The landlord must (a) make the statement available to the tenant at least once in relation to expenditure during each of the landlord's accounting periods during the term of the lease; and  (b) give the tenant the statement within 3 months after the end of the accounting period to which it relates.

 

The outgoings statement must be prepared in accordance with relevant principles and disclosure requirements of applicable accounting standards (in force from time to time) made by the Australian Accounting Standards Board. 

 

Auditor’s report.  In respect of the statement due within 3 months after the end of the accounting period, the statement must be accompanied by an auditor’s report that states whether (i) the statement correctly states the landlord's actual expenditure during the accounting period in respect of the total amount of outgoings, and each individual outgoing that comprises more than the prescribed percentage of the total amount of outgoings, to which the tenant is liable to contribute; and (ii) the total amount of estimated outgoings for that period (as shown in the estimate of outgoings given to the tenant) exceeded the total actual expenditure by the landlord in respect of those outgoings during that period.

 

However, an auditor's report is not required if it does not relate to any outgoings other than (i) GST; and (ii) water, sewerage and drainage rates and charges; and (iii) municipal council rates and charges; and (iv) insurance; and (v) any other outgoing of a kind prescribed by the regulations.  An auditor's report is also not required if the statement is accompanied by copies of assessments, invoices, receipts or other proof of payment for all expenditure by the landlord included in the statement.

 

An auditor preparing a report under subsection (5)(b) must ensure that the tenant is given a reasonable opportunity to make a written submission to the auditor on the accuracy of the outgoings statement.

 

Adjustment of contributions to outgoings – actual vs. estimated

 

There is to be an adjustment between the landlord and tenant for each of the landlord's accounting periods during the term of the lease to take account of any underpayment or overpayment by the tenant in respect of outgoings during that period (i.e. where estimated amounts paid by the tenant differ from actual amounts).

 

The adjustment is to take place (a) within one month after the landlord gives the tenant the outgoings

statement for the period; or (b) within 4 months after the end of the period; whichever is earlier.

 

Limitation on recovery of management fees

 

A provision of a retail premises lease is void to the extent that it makes the tenant liable to pay an amount for management fees unless; (a) the management fees relate to the management of the building in which the retail premises are located or, if the retail premises are located in a retail shopping centre, that centre; and (b) the lease, or a disclosure statement given to the tenant in accordance with Part 4, specifies (i) the amount of the management fees for any accounting period of the landlord during the term of the lease; and (ii) a rate, or a method for calculating a rate, for working out the amount for which the tenant is liable for that period.

 

Generally, management fees payable by a tenant cannot be increased by more than CPI each year. 

 

Recovery of land tax

 

A provision of a retail premises lease is void to the extent that it makes the tenant liable to pay an amount for tax for which the landlord or head landlord is liable under the Land Tax Act 2005.

 

Liability for costs associated with lease

 

A landlord under a retail premises lease is not able to claim from any person (including the tenant) the landlord's legal or other expenses relating to (a) the negotiation, preparation or execution of the lease; or (b) obtaining the consent of a mortgagee to the lease; or (c) the landlord's compliance with the Act.  However, this does not prevent a landlord from claiming the reasonable legal or other expenses incurred by the landlord in connection with an assignment of the lease or a sub-lease, including investigating a proposed assignee or sub-tenant and obtaining any necessary consents to the assignment or sub-lease.

 

Landlord's liability for repairs

 

The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into;

 

  • the structure of, and fixtures in, the retail premises; and

  • plant and equipment at the retail premises; and

  • the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.

 

However, the landlord is not responsible for maintaining those things if (a) the need for the repair arises out of misuse by the tenant; or (b) the tenant is entitled or required to remove the thing at the end of the lease.

 

The tenant may arrange for urgent repairs (for which the landlord is responsible under the relevant provisions of the Act or under the terms and conditions of the lease) to be carried out to those things if (a) the repairs are necessary to fix or remedy a fault or damage that has or causes a substantial effect on or to the tenant's business at the premises; and (b) the tenant is unable to get the landlord or the landlord's agent to carry out the repairs despite having taken reasonable steps to arrange for the landlord or agent to do so.  If the tenant carries out those repairs (a) the tenant must give the landlord written notice of the repairs and the cost within 14 days after the repairs are carried out; and (b) the landlord is liable to reimburse the tenant for the reasonable cost of the repairs and may not recover that cost or any part of it as an outgoing.

 

REFURBISHMENT, RELOCATION AND OTHER INTERFERENCES WITH TENANCY

 

Landlord to give notice of alterations and refurbishments

 

The landlord must not start to carry out any alteration or refurbishment of the building or retail shopping centre in which the retail premises are located which is likely to affect adversely the business of the tenant unless (a) the landlord has notified the tenant in writing of the proposed alteration or refurbishment at least 60 days before it is started; or (b) the alteration or refurbishment is necessary because of an emergency and the landlord has given the tenant the maximum period of notice that is

reasonably practicable in the circumstances.

 

Tenant to be compensated for interference

 

The landlord is liable to pay to the tenant reasonable compensation for loss or damage (other than nominal damage) suffered by the tenant because the landlord or a person acting on the landlord's behalf (a) substantially inhibits the tenant's access to the retail premises; or (b) unreasonably takes action that substantially inhibits or alters the flow of customers to the retail premises; or (c) unreasonably takes action that causes significant disruption to the tenant's trading at the retail premises; or (d) fails to take reasonable steps to prevent or stop significant disruption within the landlord's control to the tenant's trading at the retail premises; or (e) fails to rectify as soon as practicable; (i) any breakdown of plant or equipment that is not under the tenant's care or maintenance; or (ii) any defect in the retail premises or in the building or retail shopping centre in which the retail premises are located, other than a defect due to a condition that would have been reasonably apparent to the tenant when entering into or renewing the lease or when the tenant accepted assignment of the lease; or (f) neglects adequately to clean, maintain or repair the building or retail shopping centre in which the retail premises are located (but not the retail premises themselves).

 

The tenant must give the landlord written notice of the loss or damage as soon as practicable after it is suffered but a failure to do this does not affect any right of the tenant to compensation.

 

The landlord’s liability does not apply to action taken by a landlord (a) as a reasonable response to an emergency; or (b) in compliance with any duty imposed by or under an Act or resulting from a requirement imposed by a body acting under the authority of an Act.

 

Relocation of the tenant's business

 

The Act deals with situations where the landlord seeks to relocate the tenant’s business or offer the tenant a new lease of alternative retail premises. 

 

Demolition

 

The Act deals with situations where the landlord seeks to demolish the building in which the retail premises are located.

 

Damaged premises

 

Generally, notwithstanding any provision in the lease to the contrary,  if the retail premises, or the building in which the premises are located, is damaged, except where the tenant caused the damage:

 

  • the tenant is not liable to pay rent, or outgoings or other charges, while the premises cannot be used under the lease or are inaccessible due to that damage; and

 

  • if the premises can be used under the lease but that use is reduced to some extent by the damage, the tenant's liability for rent, and any amount in respect of outgoings or other charges, that is attributable to any period during which the use is reduced is decreased to the same extent.

 

If the landlord reasonably considers that the extent of damage makes its repair impracticable or undesirable and notifies the tenant in writing of that, the landlord or tenant might (depending on the circumstances) be able to terminate the lease by giving not less than 7 days' written notice of termination to the other party.  If the landlord fails to repair the damage within a reasonable time after the tenant asks the landlord in writing to do so, the tenant might (depending on the circumstances) be able to terminate the lease by giving not less than 7 days' written notice of termination to the landlord. 

 

Refurbishment and refitting

 

A provision in a retail premises lease requiring the tenant to refurbish or refit the retail premises is void unless it gives such details of the refurbishment or refitting as are necessary to indicate generally its nature, extent and timing.

 

Restriction on whom the tenant employs or engages

 

A provision in a retail premises lease is void to the extent that it limits or has the effect of limiting the tenant's right to employ or engage persons the tenant chooses.  However, the lease can contain provisions that (a) specify minimum standards of competence and behaviour for persons employed in the retail premises or other persons (such as contractors) doing work there; or (b) prohibit work from being carried out on specified items of the landlord's property; or (c) if the retail premises are located in a retail shopping centre, require the tenant to comply with any award or agreement (for example, a construction site agreement) affecting the centre.

 

ASSIGNMENT AND TERMINATION

 

When the landlord can withhold consent to an assignment

 

A landlord is only entitled to withhold consent to the assignment of a retail premises lease if one or more of the following applies;

 

  • the proposed assignee proposes to use the retail premises in a way that is not permitted under the lease;

 

  • the landlord considers that the proposed assignee does not have sufficient financial resources or business experience to meet the obligations under the lease;

 

  • the proposed assignor has not complied with reasonable assignment provisions of the lease;

 

  • the assignment is in connection with a lease of retail premises that will continue to be used for the carrying on of an ongoing business and the proposed assignor has not provided the proposed assignee with business records for the previous 3 years or such shorter period as the proposed assignor has carried on business at the retail premises.

 

Procedure for obtaining consent to assignment

 

A request for the landlord's consent to an assignment of the lease must be in writing and the tenant must provide the landlord with such information as the landlord reasonably requires about the financial resources and business experience of the proposed assignee.

 

Before requesting the landlord's consent, the tenant must give the proposed assignee (a) a copy of any disclosure statement given to the tenant concerning the lease; and (b) details of any changes of which the tenant is aware, or could reasonably be expected to be aware, that have affected the information in the disclosure statement since it was given to the tenant.  Penalty:     10 penalty units.

 

The tenant may ask the landlord to give the tenant a disclosure statement that is current from a specified date that is within 3 months before the statement is given and, if the landlord does not give the tenant such a statement within 14 days; the landlord is guilty of an offence and liable to a fine not exceeding 10 penalty units.

 

If the assignment is in connection with the lease of retail premises that will continue to be used for the carrying on of an ongoing business, the tenant must give the landlord and the proposed assignee a disclosure statement in the relevant prescribed form.

 

The landlord must deal expeditiously with a request for consent and is taken to have consented to the assignment if; (a) the tenant has complied with its obligations outlined above; and (b) the landlord has not, within 28 days after the request was made, given written notice to the tenant consenting or withholding consent.

 

Protection of assignors and guarantors

 

The tenant/assignor and its guarantors are relieved of liability to perform any obligations under the lease or to pay to the landlord any money in respect of amounts payable by the proposed assignee if the correct procedures are followed and if the relevant disclosure statement does not contain any information that is false, misleading or materially incomplete.

 

Landlord may reserve the right to refuse a sub-lease, mortgage etc.

 

A retail premises lease may contain a provision which allows the landlord an absolute discretion to refuse consent to;

 

  • the grant of a sub-lease, licence or concession in respect of all or part of the retail premises; or

 

  • the tenant parting with occupancy rights to all or part of the retail premises; or

 

  • the tenant mortgaging or otherwise charging or encumbering the tenant's estate or interest in the lease.

 

Notice of the landlord's intentions concerning renewal

 

If the tenant does not have a renewal option under the lease, the landlord must, at least 6 months but no more than 12 months before the lease term ends, give written notice to the tenant;

 

  • offering the tenant a renewal of the lease on the terms specified in the notice (including a term setting out the rent); or

 

  • informing the tenant that the landlord does not propose to offer the tenant a renewal of the lease.(An offer to renew the lease cannot be revoked without the tenant's consent for 60 days after it is made).

 

If the landlord fails to comply (a) the landlord is still under an obligation to give the tenant the required notice; and (b) the lease continues (on the same terms and conditions as applied immediately before the lease term ends) until;

 

(i) the day specified in the landlord’s notice (which must be at least 6 months after the notice is given to the tenant); or

 

(ii) if the tenant gives the landlord a notice terminating the lease from a day that is not earlier than the day on which the term of the lease expires, the day specified in that notice.  (If the landlord fails to provide the required notice, the tenant may, whether or not the landlord subsequently gives the tenant a notice, give written notice to the landlord terminating the lease from a day that is not earlier than the day on which the term of the lease expires).

 

RETAIL SHOPPING CENTRES

 

The Act contains detailed provisions regarding retail premises located in retail shopping centres.  A few are dealt with below.

 

Availability of statistical information about the retail shopping centre

 

If a retail premises lease requires the tenant to pay an amount in respect of outgoings on account of expenditure incurred by the landlord in obtaining statistical information about the operation or performance of the retail shopping centre in which the premises are located, the lease is taken to provide that the landlord must, at the request of the tenant, make the statistical information available to the tenant.

 

Advertising and promotion requirements

 

A provision in a retail premises lease is void to the extent that it requires the tenant to undertake any advertising or promotion of the tenant's business.  However, this does not apply to a provision that requires a payment to the landlord for advertising or promotion costs incurred or to be incurred by the landlord.

 

Marketing plan for advertising and promotion

 

If a lease that requires the tenant to pay an amount to the landlord for advertising or promotion costs:

 

  • At least one month before the start of each accounting period of the landlord, the landlord must make available to the tenant a marketing plan that gives details of the landlord's proposed expenditure on advertising and promotion during that accounting period.

 

  • If the tenant's payment relates to an opening promotion, at least one month before that opening promotion the landlord must make available to the tenant details of the proposed expenditure on the promotion.

 

Statement and report on advertising and promotion expenditure

 

The landlord must prepare a written statement that details all expenditure by the landlord in each accounting period of the landlord during the term of the lease on account of advertising or promotion costs to which the tenant is required to contribute under the lease.  The advertising and promotion statement must be (a) made available to the tenant at least once for expenditure during each of the landlord's accounting periods during the term of the lease; and (b) given to the tenant within 3 months after the end of the accounting period to which it relates; and (c) in the case of a statement given under paragraph (b), accompanied by a report prepared by a registered company auditor (within the meaning of the Corporations Act) that confirms whether the statement correctly states the landlord's expenditure during the accounting period in respect of advertising or promotion costs to which the tenant is required to contribute.

 

The advertising and promotion statement must be prepared in accordance with relevant principles and disclosure requirements of applicable accounting standards (in force from time to time) made by the Australian Accounting Standards Board.

 

Unspent advertising and promotion contributions

 

An amount that is (a) contributed, under a retail premises lease, by a tenant in the retail shopping centre in which the retail premises are located in respect of the landlord's advertising or promotion costs; and (b) not spent in respect of those costs; must be carried forward by the landlord to be applied towards future expenditure on advertising or promotion of the centre.

 

When the lease ends, there is to be an adjustment between the landlord and tenant for the term of the lease to take account of any underpayment or overpayment by the tenant in respect of expenditure on advertising or promotion of the centre.

 

The adjustment is to be made in accordance with the regulations and within 4 months after the end of the lease.

 

Termination by landlord for inadequate sales prohibited

 

A provision in a retail premises lease is void to the extent that it permits or otherwise provides for the termination of the lease by the landlord on the ground that the tenant or the tenant's business has failed to achieve specified sales or turnover performance.

 

Geographical restrictions on tenant prohibited

 

A provision in a retail premises lease is void to the extent that it has the effect of preventing or restricting the tenant from carrying on business outside the retail shopping centre in which the retail premises are located, either during the term of the lease or after its expiry.

 

This does not prevent a lease or other agreement from containing a provision that prevents the use of the name of the retail shopping centre in connection with a business carried on outside the centre.

 

Tenants' associations etc.

 

A provision in a retail premises lease is void to the extent that it has the effect of preventing or restricting the tenant from forming, joining or taking part in any activities of a tenants' association, chamber of commerce or similar body.

 

A landlord under a retail premises lease must not treat or propose to treat a tenant who (a) forms or joins; or (b) proposes to form or join; a tenants' association, chamber of commerce or similar body less favourably than a tenant in similar circumstances who does not do or propose to do any of those things.

OTHER

 

Unconscionable conduct

 

A landlord and tenant must not, in connection with a lease or proposed lease, engage in conduct that is, in all the circumstances, unconscionable.  The Act goes into some detail in this regard.

 

Franchise arrangements

The Act contains provisions relating to franchising arrangements.

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Contact

If you would like to discuss any aspect of this article with us, or share your own experiences, please contact Rod Stumbles at +613 8692 7255 or here.

DISCLAIMER

 

This article provides general information only and is not intended to constitute legal advice.  No lawyer-client, solicitor-client or attorney-client relationship has been created between us.  You must not rely on the contents of this article, whether as an alternative to legal advice from a lawyer or other professional legal services provider or otherwise.  You should not take, discontinue or refrain from taking any action because your understanding of the contents of this article, including without limitation delay seeking legal advice or disregard legal advice.  If you have any specific questions about any matter, you should engage us or other lawyers or other professional legal services providers to provide you with the necessary advice.  Keep in mind that you may be facing important deadlines so you should not delay in engaging someone to provide you with the advice.

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