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Norman Waterhouse

Proposed changes to the way retail leases are managed

The Government has recently introduced the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2019(the Bill) which aims to introduce some substantial changes to the Retail and Commercial Leases Act 1995 (the Act). The Bill is essentially based on the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017 (see our article from July 2017 here) which passed the lower house in September 2017 but lapsed when Parliament was prorogued prior to the March 2018 State election.

In addition to reintroducing the majority of the amendments proposed by the former bill, the Bill introduces a number of new amendments that have not previously been considered. Some of these new proposals will be of significant interest to our Local Government clients.

No new lease created by Holding Over

The Bill includes a proposed change to section 20B of the Act which will address the situation that arose in the recent case of Pastina Pty Ltd v Hosanna Excelsis One Universal Church Inc [2019] SASC 18 by removing the reference to a period of holding over exceeding 6 months. This amendment would mean that holding over after the termination of an earlier lease will not imply a new five year term, regardless of how long the holding over period continues. This will be particularly significant where a lessee remains in occupation of a premises after the expiration of a lease or licence but where the lease or licence is not formally renewed, as can often happen, either by agreement or by oversight. At present if the Lessee has not been in occupation of the premises for at least five years at the commencement of a holding over period (either because the initial term was less than five years or because of some change to the nature of the premises during the initial term), then any period of holding over for more than 6 months will create a new five year lease, regardless of the intentions of the parties. This amendment will mean that a new five year lease can never be created by holding over at the expiration of an earlier lease.

Disclosure Statements not required on Renewal

The Bill introduces a new clause with the effect that a disclosure statement does not need to be served on a lessee upon renewal of a lease. This will significantly reduce the administrative burden on councils for the renewal of leases.

Certain Registered Leases exempt from the Act

The Bill introduces amendments to the Act that will mean that a registered lease which, at the time of registration, falls outside of the rental threshold (currently $400,000pa) will remain outside of the application of the Act regardless of any changes to the rent or increase to the rental threshold which would otherwise bring the lease within the scope of the Act.

Application of the Act to Charitable Companies

A further proposal is to extend the application of the Act to lessees who are public companies limited by guarantee and registered with the Australian Charities and Not-for-profits Commission. At present all leases to publicly listed companies are exempt from the application of the Act. The proposed amendment seeks to ensure that publicly listed charities are afforded the same level of protection as unlisted companies.

Increase of Security Bond

The Bill proposes an increase of the maximum security that can be required from an amount not exceeding four weeks rent to an amount not exceeding three months rent. It is proposed that this will provide greater protection to tenants as a landlord may allow further time before terminating a lease where a tenant falls behind on rental payments. What effect this has in practical terms remains to be seen.

Previous Proposals

The Bill also incorporates the majority of the proposed amendments which were included in the former bill in 2017.

Many of the proposed amendments were discussed in more detail in our article in July 2017 including amendments to the mechanism for setting the prescribed rental threshold for application of the Act and to make it clear that leases can move into and out of the jurisdiction of the Act by changes to the rent payable under the lease or by changes to the prescribed rental threshold from time to time. The Bill also makes changes to the information to be provided to tenants prior to entering into a lease and provides for lessors to return bank guarantees to lessees, where the conditions relating to the bank guarantee have been met.

Perhaps the most significant of these proposals for our Local Government clients is the proposal to exclude leases granted by councils where the lessee is of a class specified in the regulations. Regulations setting out which classes of lessee will be exempt have yet to be drafted but we would hope that, at the very least, leases in favour of community groups and sporting bodies would be excluded from the application of the Act. The regulations can also provide that certain classes of leases and licences may be excluded from the application of the Act, again it remains to be seen how the regulations will be drafted in this regard.

In addition to the above the Bill makes a number of minor or technical amendments to the Act and increases the various maximum penalties under the Act by approximately 60 percent.

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