There are some important changes to the Retail Leases Act 2003 (Vic) which both landlords and tenants should be aware[1]. The amendments relate to issues such as costs in respect of essential safety measures, return of security deposits and obligations on renewal of lease, including the right to have a rent review determined early. This Article explores the changes.
Essential Safety Measures[2]
In recent years, there has been uncertainty about whether costs relating to essential safety measures were able to be passed on to tenants. The amendments to the Retail Leases Act 2003 (Vic) finally provide landlords and tenants clarity on this issue.
Outgoings- a landlord can now recover from a tenant as outgoings, the cost of repairs or maintenance works in respect of essential safety measures. Where a landlord wishes to recover the cost of essential safety measures as outgoings, the retail lease should include a provision that the tenant must pay the landlord as a contribution to outgoings, for the cost of installation, repairs or maintenance work in respect of essential safety measures.
Repairs to essential safety measures- a retail lease can include a provision requiring the tenant to pay for the cost of repairs and maintenance in respect of essential safety measures, or the installation of an essential safety measure relating to the fit out of the premises which the tenant has agreed to pay. Further, a tenant may agree with the landlord to carry out repairs or maintenance work in respect of an essential safety measure on behalf of the landlord. If the tenant carries out such work on behalf of the landlord, the landlord (as owner of the building) remains responsible for complying with its obligations under the Building Act 1993 (Vic).
Landlord’s Disclosure Obligations on Entering into Lease
A landlord must, at least 14 days (previously 7 days), before entering into a retail lease give the tenant a disclosure statement in the prescribed form and a copy of the proposed lease including particulars of the tenant, the rent and the term. If the landlord fails to give the tenant the disclosure statement and proposed lease within the prescribed time, the term of the lease is taken to commence 14 days after the disclosure statement and proposed lease are given to the tenant.
Landlord’s Disclosure Obligations on Renewal of Lease
On renewal of a retail lease, a landlord must provide to the tenant a disclosure statement setting out any changes to the previous disclosure statement given to the tenant in respect of the lease and must include information that is current (i.e. within 3 months before the statement is given). This is intended to give tenants a clear indication of any changes affecting the retail premises since the previous disclosure statement was issued by the landlord.
Landlord’s should ensure they retain copies of disclosure statements issued to tenants, and where retail premises are purchased, copies of previously issued disclosure statements should be obtained from the previous owner, so that the landlord can comply with its disclosure obligations.
Renewal of Lease- Landlord Obligations and Tenant rights
Landlord Notice- Where a lease includes an option to renew the lease for a further term, a landlord must at least 3 months before the last date on which the option may be exercised, give the tenant written notice of the following:
1. the last date by which the option to renew the lease may be exercised by the tenant;
2. the rent payable for the first 12 months of the renewed term;
3. the availability of an early market rent review;
4. the availability of a cooling off period; and
5. any changes to the most recent disclosure statement provided to the tenant (other than changes relating to rent),
(“Landlord’s Renewal Notice”).
If the landlord fails to give the tenant the Landlord’s Renewal Notice, the date after which the option is no longer exercisable is extended to 3 months after the landlord provides the Landlord’s Renewal Notice (even where the extended date falls after the expiry date of the lease).
Early Market rent review- If the lease includes a market rent review clause, the tenant may request an early rent review by giving the landlord written notice within 28 days of the landlord gives the Landlord’s Renewal Notice. The tenant must notify the landlord whether it exercises the option to renew the lease on or before the last day by which the option must be exercised. However, where a specialist retail valuer has been appointed to determine the market rent, the last date by which the tenant must exercise the option is extended by 14 days after the date the tenant is notified of the market rent.
Cooling off rights- If the tenant has exercised an option to renew the lease for a further term and has not requested an early determination of the market rent, the tenant may give the landlord a written notice within 14 days of exercising the option, that the tenant no longer wishes to exercise the option to renew the lease.
Return of Security Deposits
Provided that the tenant has performed its obligations under the lease, the landlord must return the security deposit (including bank guarantees and bonds) to the tenant within 30 days after the lease ends.
The changes to the Retail Leases Act 2003 (Vic), relating to essential services measures came into effect on 23 September 2020, with the balance of the amendments taking effect on 1 October 2020, unless proclaimed to come into effect at an earlier date.
28 September 2020
Kathy Tsiaplis is an Australian Legal Practitioner with extensive experience in Property Law. She has previously worked inhouse for both landlord and tenant operators and now as the Principal of KTSI Legal, services both landlord and tenant clients. Kathy is a member of the Law Institute of Victoria Leases Committee. For any enquiries, please contact Kathy directly on 0414 645 216 or by email Kathy@ktsilegal.com.au
The information in this article is intended to provide a general guide to the subject matter. Although we have made every effort to provide accurate information, we do not guarantee the information is accurate at the date it is received or that it will continue to be accurate in the future. Advice should be sought about your specific circumstances.
Photo by Aaron Yong on Unsplash
[1] The Retail Leases Amendment Act 2020 (Vic) received Royal Assent on 22 September 2020.
[2] Essential safety measures are defined in Part 15 of the Building Regulations 2018 (Vic) and include items such exit doors, emergency lifts, emergency lighting, exit signs, fire extinguishers, smoke alarms, sprinkler systems etc.