In brief 4 min read
On 15 September 2020, the Retail Leases Amendment Bill 2019 (Vic) (Bill) was passed with no substantive changes, and is now awaiting assent.
The Bill introduces amendments to the Retail Leases Act 2003 (Vic) and Building Act 1993 (Vic) (and Regulations) to implement reforms from the Small Business Regulation Review and provide clarity as to whether landlords may recover costs incurred for 'essential safety measures'.
In this Insight, we:
- examine the key amendments introduced by the Bill; and
- outline steps that both landlords and tenants should take in response.
Background
In our November 2019 update, we outlined the changes to landlord and tenant rights and compliance obligations under retail shop leases being proposed by the Bill.
The amendments will come into effect on the day after assent, with select provisions applying from 1 October 2020 if not proclaimed earlier.
The Real Estate Institute of Victoria (REIV) was lobbying for the Bill to be suspended during the COVID-19 pandemic. The REIV is concerned with the potential passing on of ESM costs to tenants, and also considers that the process of accurately determining market rents in the current environment is almost impossible, which means the right for tenants to request early rent reviews will cause issues.
How does this affect you?
The key amendments introduced are:
- Essential Safety Measures (ESMs): The Building Act and Retail Leases Act are amended to provide that parties to a lease can agree on which party will bear the cost of installation, repairs and maintenance in respect of ESMs. Where agreed, landlords can recover ESM costs as outgoings.
- Transitional provisions: The Bill provides that provisions in existing leases that provide for the recovery of ESM costs by a landlord are not void.
- Disclosure Statements: Landlords will be required to provide a tenant with a disclosure statement and a copy of the proposed lease at least 14 days before entering into a retail premises lease. Penalties apply for non-compliance. Where given after the 14 days, the term of the lease is taken to commence 14 days after the disclosure statement and copy of the proposed lease are given.
- Changes in proposed Lease: Landlords must notify tenants of changes in the proposed lease (from the previous copy given to them). If the landlord fails to comply with this obligation, they will be liable to a penalty (250 penalty units for a body corporate). Accordingly, landlords should give tenants a compare or marked-up copy of the lease prior to signing to avoid any breaches of this proposed new requirement.
- Three months lead time for lease renewals/exercise of options: Landlords must also provide a disclosure statement three months prior to the exercise date of any option. The statement must set out the last date by which an option term may be exercised, the rent payable in the first 12 months of the option term, and whether an early rent review or a cooling off period are available. Any changes to the most recent disclosure statement must be highlighted.
- Security deposits: Landlords must return security deposits, including bonds and bank guarantees, to the tenant within 30 days of a tenant complying with any relevant obligations under a retail lease. This alters the previous requirement to return security deposits 'as soon as is practicable'.
- Early rent review: Where a retail lease provides for a market rent review, tenants may request an early rent review by giving the landlord notice within 28 days after the landlord gives the tenant notice under s28(1)(a) of (among other things) the date by which the option to renew the lease must be exercised.
- Cooling off period: In certain circumstances, a tenant who has exercised an option to renew a retail lease will have the benefit of a 14 day cooling off period to change their mind.
Actions you can take now
Landlords should:
- review their standard leases, particularly with respect to the definition of outgoings and how ESM costs are dealt with; and
- review their processes for providing tenants with details of changes in disclosures and leases, particularly noting the large penalties should this not be complied with.
Tenants should:
- ensure they take advantage of the early rent review provisions so they can make an informed decision as to whether or not to exercise an option;
- understand the 14 day cooling off period if they do not utilise the early rent review provisions; and
- check they receive a copy of the changes to the proposed lease and disclosure statements, so they are fully aware of what has changed.
We are committed to keeping our clients updated on all areas of interest. For a more detailed outline of the new provisions, please see our November 2019 update. If you have any questions about the effect of the amendments, we are happy to discuss.