Significant amendments to retail shop leases legislation in Queensland

In brief

Significant amendments to laws governing retail shop leases in Queensland will be made under new legislation just introduced into the Queensland Parliament. Landlords should carefully review the Bill so they can be prepared for the new regime once it commences. Partner John Beckinsale and Special Counsel Christine Adamson report on the major changes.

Background

We reported in November 2014 on the Retail Shop Leases Amendment Bill 2014 (which lapsed upon the calling of the election in early 2015). The 2014 Bill has now been superseded by the Retail Shop Leases Amendment Bill 2015 (the Bill) introduced on 13 October 2015. It is very similar to the 2014 Bill but there are differences.

In accordance with the provisions of the Retail Shop Leases Act 1994 (the Act), a statutory review of the operation of the Act was required to be conducted. The Bill is the result of considerable stakeholder consultation conducted in the review of the Act. Significantly, the Act itself comprises approximately 84 pages and the Bill comprises 60 pages, indicating the significant nature of the amendments. Given the numerous proposed amendments, this article only deals with the most significant proposed changes.

Key amendments

Overview

The Bill focuses on the following:

• excluding certain leases from the Act's operation;
• clarifying the disclosure provisions;
• enhancing tenant protection;
• including provisions which benefit landlords;
• providing for liabilities for certain costs; and
• simplifying procedural requirements.

There is still no minimum term or preferential rights for retail shop leases in Queensland, unlike the other jurisdictions, which is good news for landlords of retail properties in Queensland.

We discuss the main amendments below.

Leases excluded from the Act's operation

• The existing Act provides that leases of more than 1000m² are excluded from the Act's operation if the tenant is a listed corporation or a listed corporation's subsidiary. The Bill extends this exclusion to all leases with a floor area greater than 1000m², ie there is no longer a listed corporation requirement. This is on the basis that tenants of such areas are effectively sophisticated parties and do not require the protection of the Act.
• Also excluded are premises (which are not retail premises):
  • located on a level of a multi-storey building where 25 per cent or less of the total lettable area is retail area; and
  • that are in a standalone building where 25 per cent or less of the total area of the building is retail area.

For the purposes of this definition, retail area means the area of the level or building comprising premises used wholly or predominantly for carrying on retail businesses. This will assist shopping centres where there is a separate commercial/office floor(s).

• The Bill clarifies that automatic teller machines, vending machines and advertisement displays are excluded for the purposes of the Act.

Enhanced tenant protection

• There is a procedure for tenants to waive the disclosure period (although disclosure is still required before the lease is entered into).
• Landlords are required to give a disclosure statement to an existing tenant exercising an option within seven days after the landlord receives the tenant's notice exercising that option (a procedure to waive the disclosure period applies here as well). Within 14 days of receiving the disclosure statement, the tenant may (whether or not the renewed lease period has commenced) give the landlord a written notice withdrawing the renewal. The tenant is not required to give any reason for the withdrawal.
• The tenant may terminate a retail shop lease by giving written notice to the landlord within six months after the tenant enters into the lease or renewed lease if the landlord does not give a disclosure statement (or gives a defective statement). This has always been the case; however, there is now an objection procedure the landlord can follow if it wants to oppose the purported termination.
• Disclosure to franchisees and sublessees is now specifically included.
• A tenant is only required to refurbish premises during the lease term where the lease gives sufficient details of the nature, extent and timing of the required refurbishment. This is similar to the requirement existing in NSW.
• The statutory requirement for a tenant to provide monthly and annual turnover figures has been deleted. Landlords will need to ensure that there is an obligation in the lease for tenants to provide these certificates and statements if they are required by the landlord.
• A landlord's annual estimate and audited statement of outgoings must include a breakdown of the estimated fees to be paid by the lessee towards the administration costs of running the centre and any other fees to be paid to a centre management entity. If a landlord does not provide the estimate and audit, a tenant may withhold outgoings payments until it does.
• If the lease requires the tenant to pay for promotion and advertising, at least one month before the start of each accounting period, the landlord must make available to the tenant a marketing plan giving details of the proposed promotion and advertising expenditure. This requirement can be satisfied if the plan is published on a landlord's website that is accessible to the tenant. The landlord must also provide to the tenant an audited statement of the landlord's expenditure on promotion amounts.
• On an assignment of a retail shop lease, both the assignor and the guarantor of the assignor are now released from liability due to the default of the assignee if the assignor has complied with the disclosure obligations and the disclosure statement is not a defective statement.
• A landlord is liable for mortgagee consent costs. However, a prospective tenant is liable for the landlord's reasonable legal and other expenses for the preparation of a final lease if the tenant gives a notice agreeing to the preparation of the final lease and does not sign it. To trigger the payment of the costs, the prospective tenant must give a written notice to prepare a final lease and the final lease is prepared.

Amendments benefitting landlords

• The Bill clarifies that the landlord disclosure statement is a defective statement if it:
  • is incomplete in a material particular; or
  • contains information that is false or misleading in a material particular.
• Significantly, a disclosure statement is not a defective statement merely because:
  • it omits information that is irrelevant to the lease; or
  • its layout does not comply with that of the approved form.
• There is a general clarification of the compensation provisions. In particular, under s43(1) (which provides for the landlord to pay compensation if it substantially restricts a tenant's access to the leased shop, takes action that substantially restricts or alters access by customers to the leased shop etc) a landlord is not liable to pay compensation for loss or damage suffered because the landlord takes action:
  • as a reasonable response to an emergency; or
  • in compliance with a statutory duty.

Some tenants tried to bring compensation claims because landlords were required to close centres during the recent flood events in Queensland, and this provision will assist landlords in similar circumstances in the future.

• A similar procedure as exists in NSW has been adopted which allows landlords to include a provision in a lease limiting a claim for compensation for anticipated disturbances (eg planned redevelopment works) if, before the lease is entered into, the landlord gives the tenant written notice of the proposed disturbance. Unlike NSW, the anticipated disturbance must occur in the first year of the term and there is no provision stating that the lessor disclosure statement is sufficient for the purposes of giving the notice. Accordingly, a formal notice may need to be given before the lease is entered into to ensure the protection is obtained.
• Clarification that a tenant is not entitled to 'double dips' of compensation under ss 43, 46G (relocation costs) or s46K (reasonable compensation) has been included.

General amendments

• There is clarification of areas excluded for the purposes of apportioning a landlord's outgoings. In particular, a retail shop lease must exclude, from the total area of the shopping centre taken into account in determining apportionable outgoings, areas within a common area of the centre used for a prescribed purpose. Prescribed purpose includes information, entertainment, community or leisure facilities, telecommunication equipment, automatic teller machines etc.
• The general restrictions on rent reviews (including only being able to review rent on a single basis, not more than once in each year etc) can effectively be waived by a major lessee (being a lessee that leases more than five retail shops in Australia) by simply giving a notice to that effect before the lease is entered into. This applies without the need for that notice to state that the major lessee has received appropriate financial and legal advice about the lease, it being recognised that major lessees are sophisticated tenants and can make their own decisions about obtaining such advice.

Where to from here

At this stage, it is not known when the Bill will become law, or if the Bill may be amended before being enacted. Landlords should carefully review the Bill so that they have the appropriate systems in place to deal with the amended processes once the Bill commences.