Attention Landlords, Leasing Agents and Tenants!

March 26, 2018 / Summer Report 2018

Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017 – what you need to know and where to from here

In December 2014, the Small Business Commissioner initiated a formal review of the Retail and Commercial Leases Act 1995 (SA) (the Act), in order to support the small business sector. The review was completed in April 2016 by retired District Court Judge Alan Moss who made 20 recommendations on a broad range of issues relating to the Act. In July 2017, the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017 (SA) (the Bill) was introduced.

The Bill passed through the House of Assembly, and having waited for consideration by the Legislative Council of the South Australian Parliament has now lapsed. Nevertheless, the Small Business Commissioner insists that the changes introduced under the Bill be recommended to the new Government. Landlords, leasing agents and tenants should take note of the key proposed changes:

1. Copy of lease and information brochure

The Bill provides that as soon as a landlord (or their agent) enters into negotiations with a prospective tenant, and before a lease is entered into, the tenant must be provided with a written copy of the proposed lease (but not necessarily including the particulars of the lease, such as rent and term). The maximum penalty for non-compliance has increased to $8,000.

Further, at the time the proposed lease is provided to the prospective tenant, the tenant must also be provided with a copy of an “Information Brochure” about retail leases published by the Small Business Commissioner. The maximum penalty for non-compliance is $800.

Importantly, these provisions do not apply to lease renewals.

2. Disclosure statement

The Bill contains more defined provisions relating to Disclosure Statements. A landlord (or their agent) must, and before a lease is entered into, provide the tenant with a Disclosure Statement:

1. In duplicate; and
2. Signed by or on behalf of the landlord.

Further, a tenant (or their agent) must return to the landlord (or their agent) a signed acknowledgement of receipt of the Disclosure Statement within 14 days of service of the Disclosure Statement.

Notably, the Bill now provides that a Disclosure Statement does not need to be provided to a tenant upon lease renewals.

3. Bank guarantees

The Bill includes new provisions regarding bank guarantees. A landlord is now obligated to return a bank guarantee to the tenant within 2 months after the tenant completes performance of their obligations under the lease (for example, after completion of make good). The maximum penalty for non-compliance is $8000. This does not apply to bank guarantees that are expired or cancelled, or where the landlord’s claim to the bank guarantee is the subject of court proceedings. Further, where a landlord is unable to return the original bank guarantee, they can simply provide a consent or release required to have the bank guarantee cancelled.

Importantly, a landlord is liable to pay the tenant compensation for any loss or damage suffered by the tenant as a result of the failure to return the bank guarantee, and the reasonable costs incurred by the tenant in cancelling the bank guarantee because the landlord was unable to return it.

4. Certified exclusionary clause

Currently, the Act provides that the statutory rights of security (for at least a 5 year term) can be excluded by a certified exclusionary clause. This is a provision of a lease whereby a certificate signed by a lawyer (not acting for the landlord) endorses the lease to the effect that the lawyer has, at the request of the prospective lessee:

1. explained the effect of the provision and how the Act would apply if the provision wasn’t included; and
2. the tenant gave the lawyer apparently credible assurances that they were not acting under coercion or undue influence in requesting or consenting to the inclusion of the provision in the lease.

The Bill now provides that this can be completed by the Small Business Commissioner (who may require payment of a fee for this service).

5. Further clarifications:

The Bill now also provides the following (long-awaited) clarifications:

1. The prescribed rent threshold (in order to determine whether the Act applies to a lease) is $400,000 per annum, exclusive of GST;
2. A security bond cannot exceed 4 weeks’ rent, exclusive of GST;
3. The Act may apply, or cease to apply, to a lease from time to time. Therefore leases can “move into” or “out of” the jurisdiction of the Act. For example, depending on whether the rent is increased or decreased, or whether the tenant changes from being a public company to a proprietary company and vice versa;
4. The terms “public company” and “subsidiary” now have the same meaning as in the Corporations Act 2001.

While not fundamental, the amendments to the Act contemplated by the Bill will provide the retail leasing sector with long-awaited clarity and reform. Landlords, leasing agents and tenants will need to “watch this space” for progress on the Bill enactment.

For more information, please contact:

William Esau
Director
p.  +61 8 8124 1955
e.  Email me

Julia Schinella
Associate
p.  +61 8 8124 1869
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.