Australia: Significant changes for retail landlords and tenants in Western Australia

Real Estate Update (Australia)
Last Updated: 12 February 2013
Article by Brian Pass and Fabrice Lincoln

A number of amendments to the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (The Act) and the Commercial Tenancy (Retail Shops) Agreements Regulations 1985 (WA) (The Regulations) came into effect on 1 January 2013.

The changes are significant and will impact all retail landlords and tenants. Landlords will need to revise their template documentation and procedures to accommodate these changes.

This update contains an outline of some of the changes. All provisions cited in this update refer to the Act unless otherwise stated.

AMENDMENTS TO EXISTING DEFINITIONS (SECTION 3 OF THE ACT)

Retail shop lease - exclusions for listed corporations

Leases to listed corporations (including corporations listed outside Australia) or subsidiaries of such corporations are excluded from the operation of the Act. This amendment has narrowed the scope of the exclusion, which previously excluded leases to all public companies (not just public listed companies).

Retail shop lease - leases exceeding 1,000 square metres

Leases for premises exceeding a lettable area of 1,000 square metres will not be excluded from the operation of the Act if it falls within certain types of retail shops prescribed in the Regulations. Previously, all leases for premises exceeding a lettable area of 1,000 square metres were excluded from the Act.

Retail shopping centre

The Act applies to premises situated in a shopping centre containing five or more retail shops. However if the shopping centre has two or more floor levels, the Act will only apply to premises on those levels where a retail business is situated.

Lettable area

The Regulations now provide the method of determining the "lettable area" of the premises. This is relevant for determining if the Act applies to a lease and determining the proportion of outgoings that the tenant is required to pay.

The lettable area means so much of the surface floor area of the premises "as are designed and available for use in carrying on the business that is, or will be, carried on at the shop".

The definitions list certain areas that should not be taken into account when calculating the lettable area (not an exhaustive list):

  • The lettable area must not include (unless the tenant has a right to exclusive use of the area)areas covered by awnings, balconies, areas under planter boxes, terraces, verandahs, public spaces, thoroughfares or access ways or other areas that are not reasonably capable of carrying on the business that is, or will be, carried on at the shop.
  • The lettable area must not include the following areas provided as a common facility (unless the tenant has a right of exclusive use of the area) access ways, cupboards, escalators, stairwells and landings, fire hose eel cupboards, lift shafts and lobbies, plant/motor rooms, recessed doorways, storage rooms, team rooms and other service areas, telecommunications cupboards, toilets, car park spaces and entrance halls.

TENANT GUIDE AND DISCLOSURE STATEMENT

The amended Regulations set out a more comprehensive Disclosure Statement and Tenant Guide, which will be required for any retail shop lease entered into on or after 1 January 2013 (Form 1 of the Regulations). Amongst other things, the updated Disclosure Statement requires a landlord to disclose:

  • The details of any options to renew and how and when they should be exercised
  • A breakdown of all the costs payable under the lease
  • A plan setting out the tenancy
  • Improved information regarding permitted and exclusive use of premises
  • Greater detail about services, fixtures and fittings provided with the premises.

It also requires the landlord to refer to the lease clause relevant to each disclosure. In addition, it is now an express requirement that the Disclosure Statement is complete (section 6(1)).

If a landlord fails to provide a Disclosure Statement at least seven days before the lease is entered into, or the Disclosure Statement is incomplete, a tenant may now terminate the lease within six months of entering into it (previously of 60 days) (section 6(1)(a)). However, this does not apply if the landlord has acted honestly and ought to be excused, and the tenant is in substantially as good a position, despite the landlord's error (section 6(3)).

LANDLORD EXPENSES

A landlord is no longer able to claim from the tenant (or any person) the landlord's legal or other expenses relating to:

  • The negotiation, preparation, or execution of the lease/renewal/extension
  • Obtaining the consent of a mortgagee
  • The landlord's compliance with the Act (section 14B(1)).

However, the landlord may still claim any reasonable legal or other expenses in connection with an assignment or sublease, including the costs of investigating a proposed assignee or sublessee (section 14B(2)).

For leases entered into on or after 1 January 2013, provisions requiring the tenant to contribute towards the cost of the landlord's finishes, fixtures, fittings, equipment or services are void unless the Disclosure Statement notifies the tenant of such provisions (section 12(3A)).

RIGHT TO AT LEAST FIVE YEARS TENANCY

If the lease term plus options is more than six months but less than five years, the tenant has a statutory option to bring the total term to five years unless:

  • The tenant has been in occupation for a period which, with the current term and options, totals at least five years; or
  • (In the case of subleases) the extension would be inconsistent with the term of the head lease (section 13(1) and (2)).

A lease for a term of more than six months includes tenancies where the tenant has been continuously in possession of the premises for more than six months as a result of the lease being renewed or continued.

The statutory option must be exercised at least 30 days before the end of the lease (section 13(3)). However, the Registrar has power to reduce that period (section 13(3a)).

Notwithstanding the minimum five-year statutory term, a landlord may still terminate a lease before five years in the event of default by the tenant or the tenant becoming bankrupt.

NOTIFICATION OF OPTION TO RENEW

Section 13C deals with the landlord's obligation to notify the tenant of an option to renew.

If a lease provides (whether contractually or by statute) an option to renew the lease exercisable by the tenant, the landlord must, between six and 12 months before the option expiry date, notify the tenant in writing of the option expiry date (section 13C(1)).

If the landlord fails to notify the tenant of the option expiry date, the option expiry date extends to the date which is six months after the landlord notifies the tenant (section 13C(2)(a)).

If an extended option expiry date falls on a day which is after the expiry of the original lease, the original lease is deemed to continue until the extended option expiry date (section 13C(2)(b)).

If an option to renew is exercised after the expiry of the original lease, but before the extended option expiry date, the renewed lease is deemed to commence at the expiry of the original lease (section 13C(4)).

Section 13C is to be transitioned in as follows:

Option expiry date: Notice must be given:
Before 1 July 2013 The landlord is not required to give notice under the Act
1 July 2013 - 30 September 2013 Between 1 January 2013 and the date that is two months before the option expiry date
1 October 2013 - 31 December 2013 Between 1 January 2013 and the date that is three months before the option expiry date
After 1 January 2014 Between six and 12 months before the option expiry date

RELOCATION CLAUSES

For leases where five years of the term has not elapsed, a relocation clause will be void unless (section 14A(1)):

  • It is in the form prescribed by the Regulations; or
  • It is in a form specifically approved by the Tribunal (section 14A(3)).

For leases where five years of the term has elapsed, a relocation clause will be void unless (sections 14A(1)(c) and 14A(2)):

  • The landlord has provided the tenant with a relocation notice at least six months before the relocation date
  • The relocation notice must provide details of an alternative retail shop to be made available to the tenant
  • The tenant is offered a new lease for the alternative shop on the same or better terms as the existing lease
  • The landlord pays to the tenant all reasonable costs of relocation.

If the landlord does not offer an alternative retail shop, the landlord is liable to pay to the tenant reasonable compensation as agreed in writing by the parties or determined by the Tribunal (section 14A(2)(e)).

OTHER AMENDMENTS

Rent review

The valuation of market rent must not take into account the value of:

  • The goodwill of the tenant's business
  • Any stock, fixtures or fittings on the premises that are not the property of the landlord
  • Any structural improvements carried out by the tenant at their cost (section 11(2)(a)).

If a licensed land valuer has been appointed to determine the market rent, the landlord must provide to the valuer all relevant information requested within 14 days of the valuer's request (section 11(3B)). This includes information about comparable shop leases in the same building or shopping centre.

Refurbishment

For leases entered into on or after 1 January 2013, provisions requiring the tenant to refurbish or refit the premises are void, unless the provision gives details of the nature, timing and extent of the required refit or refurbishment (section 14C).

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

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