Retail Lease Refresher: What do businesses need to know?

Major changes to the NSW Retail Leases Act commenced in 2017 and will be starting to have some effect in the market.

Minimum five-year terms scrapped: Accordingly, the certificate required to reduce the minimum term is no longer needed

New definition of outgoings for landlords: This potentially broadens what landlords can claim including fees for services provided regarding the management, operation, or repair of the retail shop.

New rules about passing on outgoings to tenants: A new section to the Act provides that tenants are not liable to pay outgoings to the landlord unless included in the landlord’s disclosure statement for the lease. Also, if an outgoing’s estimate is less than the actual amount, the tenant will only be liable for the estimate unless the landlord can prove there was a reasonable basis for the estimate.

The new section includes claw back provisions that entitles a tenant to recover any amount already paid to the landlord that the tenant did not have to pay.

Agreements to lease specifically covered by Act: If landlords do not ensure the tenant is provided with a lessor’s disclosure statement at least seven days before the agreement for lease is entered into, the tenant may terminate within the first six months.

Tenants now entitled to compensation when disclosure statements not in order: A tenant will be entitled to compensation from the landlord where the tenant terminates the lease during the first six months where the landlord has given the tenant an incomplete, false or misleading lessor’s disclosure statement, or failed to give the tenant any statement at all.

If this occurs, landlords will also be responsible for paying compensation for costs reasonably incurred by the tenant when entering the lease, including compensation for expenditure on the retail shop’s fit out.

New time frames and penalties for lease execution and registration: There are new time frames for the landlord to execute and register the lease and penalties if this does not occur.

New rules around demolition: Landlords can terminate a lease where there is a proposal to undertake demolition of any part of the building that cannot happen without vacant possession of the retail shop. “Demolition” has been expanded to include repair, renovation and reconstruction. 

Mortgagee consent fees: Landlords are no longer entitled to recover these from a tenant.

Turnover rent and online sales: In some cases, revenue from online transactions must be excluded from turnover rent calculations, and landlords cannot require a tenant to provide information regarding turnover from online transactions.

New templates: There are new templates now available. Existing templates should be checked for accuracy.

Certain shops now excluded from the Act: Certain types of shops are now excluded from the definition of retail shop even if within a shopping center such as ATMs and banks.

Katrina Reye is a partner at Hall & Wilcox www.hallandwilcox.com.au