Changes to the Retail Leases Act 2003 – Early Market Reviews and changes to Disclosure Statement Requirements
Landlords and tenants should be aware of the recent amendments to the Retail Leases Act 2003 (“Act”) by the Retail Leases Amendment Act 2020, in particular in relation to early market reviews and the timing for provision of a Disclosure Statement to the tenant.
The Act now provides that a retail lease will not commence until at least 14 days after the landlord has given the tenant a copy of the proposed lease and a disclosure statement.
In order to meet this obligation:
- the documents must (at a minimum) include the proposed rent and the length of the lease term, as well as the particulars of the tenant; and
- where changes have been made from previous drafts of the documents, the landlord must notify the tenant of the changes that have been made.
These changes will be relevant to all retail premises, but will be particularly important in matters where:
- the tenant has begun (or intends to begin) occupying the premises before the parties have signed a lease;
- the tenant is to be granted a new lease as part of a business purchase (IE, as the terms of any new lease will now need to be agreed at least 14 days from settlement); or
- the parties have entered an Agreement to Lease.
These changes are effective from 1 October 2020 and there are serious consequences (including financial penalties) for landlords who fail to meet their obligations.
LEASE RENEWAL & EARLY MARKET RENT REVIEWS
Most leases provide that when a lease is renewed by way of exercise of an option for a further term, the rent is to be reviewed to market.
The process for determining the market rent is set out in the lease and usually provides that where the tenant and landlord cannot agree on a market rent, the rent will be determined by an independently appointed valuer.
Prior to the amendment of the Act, the tenant generally had to exercise its option for the further term before the market review process took place. This meant that the tenant was already bound and a new lease was entered into at the time the option was exercised by the tenant, without the market rent first being determined.
The Act now provides that the following process must be followed where there is an option for a further term under the lease:
- at least 3 months before the last date on which the tenant can exercise its option to renew the lease, the landlord must give the tenant written notice which (amongst other things) proposes the rent to be paid during the first 12 months of the renewed lease;
- within 28 days of receiving this notice, the tenant may request an ‘early rent review,’ including the appointment of an independent valuer to determine the market rent;
- where the rent is determined by a valuer, the tenant must be allowed least 14 days to consider the determination before deciding whether they wish to renew the lease; and
- if the tenant does not request an ‘early rent review,’ the tenant will have a 14 day ‘cooling-off’ period in which they can revoke a decision to renew the lease.
As a result of these changes, tenants will have greater certainty when deciding whether they wish to renew their lease. These changes could also give tenants greater leverage in renewal negotiations, particularly where the market dictates that rent should decrease.
It should also be noted that where a landlord fails to give the required notice under section 28 of the Act:
- the last date on which the tenant may exercise its option to renew the lease will be extended to the date that is 3 months after the required notice is actually given; and
- the current term of the lease will automatically extend to continue until the date that is 3 months after the required notice has actually been given.
HOW CAN MST HELP?
MST Lawyers can provide specialist legal advice and representation on both of these processes, or in respect of your leasing arrangements generally. Please contact MST Lawyers by email or on +613 8540 0200.