Retail leasing will change from 1 October 2020. With all of the leasing focus in recent months being on the Commercial Tenancy Relief Scheme, it would be easy to miss these changes.
But don’t miss them, they’re important.
The changes bring some much-needed clarity to one of the more contentious issues that arises in the retail leasing space – Essential Safety Measures.
Essential Safety Measures
Landlords can now recover Essential Safety Measures (ESM) costs from a tenant provided the lease makes the tenant liable to pay those expenses. ESM can include items such as smoke detectors, water sprinklers and other fire protection measures as well as the cost of the annual safety inspections.
This change will apply to all existing retail leases, as well as new ones entered from now on (but will not capture the cost of works payable before the commencement of the Act). This amendment changes the current ruling on recovery of ESM costs as set out in VCAT’s advisory opinion issued in May 2015.
Landlord’s disclosure statement
The timeframe for the provision of the landlord’s disclosure statement will be increased to 14 days (formerly 7 days) prior to the commencement of the lease. For those landlords that fail to comply with this obligation, financial penalties have been introduced – up to 250 penalty units (that’s over $40,000) for a body corporate or 50 penalty units for an individual.
Notice and disclosure obligations in relation to further terms
Where a lease contains an option to renew for a further term, a landlord must, at least three months before the deadline for exercising the option, give a notice containing the following information to a tenant:
- the date by which the tenant must exercise the option to renew;
- the rent payable for the first 12 months of the new term;
- the availability of an early rent review;
- the availability of a cooling off period; and
- any changes to the landlord’s most recent disclosure statement (other than changes to the rent).
The most beneficial change for tenants here being the requirement for landlords to provide early notification of the proposed new rent for the further term.
Market rent reviews for further terms
A new section 28A is introduced into the Retail Leases Act affecting leases that include a market rent review mechanism. The new section allows tenants to ask the landlord for an early market rent review – the request must be made within 28 days of receiving the landlord’s renewal notice (see above). The Act will operate to make sure the tenant always has at least 14 days to exercise the option after the market rent has been determined.
Cooling off periods
A retail tenant will now enjoy a cooling off period if the tenant has not requested an early rent review under section 28A (see above). The cooling off period will give a tenant 14 days from the date it exercises its option – within that period the tenant can serve written notice on the landlord stating that it no longer wishes to renew the lease.
Return of Security Deposits
Where a tenant has met its obligations under the lease, the tenant’s security deposit must be returned within 30 days of the end of the lease.
How we can help
Both landlords (and their agents) and tenants need to be aware of the changes and the impacts they may have on their respective leases. If you are about to enter into new retail leasing arrangements or are concerned about how the changes may affect your current lease, Moores can assist you in navigating the new requirements. For more information, please do not hesitate to contact us.