Retail Lease updates
Almost every commercial lease is a retail lease these days! And retail leases are highly regulated, whereas commercial leases are not.
Whether a lease is commercial or retail was often contested in Victoria, until a Supreme Court decision in 2017 (CB Cold Storage Pty Ltd v IMCC Group (Aust) Pty Ltd). The ‘ultimate consumer’ test was developed, so to determine whether a lease is retail or not, it is a question of whether the person acquiring the good or service from the tenant business is the ultimate consumer of those goods or services.
A commercial lease would usually involve large scale warehousing or storage, with no retail component.
There has been two fairly major changes to the Retail Leases Act over the last two years – first in 2020, and then at the end of 2022.
Disclosure
There is now a longer disclosure period requirement – a tenant must see the disclosure information at least 14 days before entering a new lease.
And there is more detailed disclosure required when a tenant renews a lease.
Outgoings
A requirement that many overlook, is ongoing disclosure of estimated outgoings each accounting period during the term of the lease. Many landlords give their estimation of outgoings in their disclosure before the start of the lease. But they are also supposed to give an estimate of the next year’s outgoings at least one month before the start of the next period.
The landlord is also supposed to give a statement of outgoings within 3 months of the end of the accounting period as well. The statement needs to be accompanied by copies of invoices and proof of payment. If the tenant has overpaid or underpaid outgoings, there needs to be an adjustment.
Renewals
Usually a tenant has between 3 and 6 months to notify their landlord if they want to take up the option on their lease.
Within 3 months of the last date an option for renewal may be exercised (so that’s usually 6 months before the end of the term!), the landlord must notify the tenant of:
- the last date by which the option to renew may be exercised;
- the rent payable for the first 12 months under the renewed lease term;
- the availability of an early rent review, if a market rent review is to take place at the start of a further term;
- the availability of a cooling-off period under the Act; and
- any changes to the last disclosure statement given to the tenant.
If the landlord fails to give to the tenant all that information (at least 3 months before the last date an option for renewal may be exercised), the lease term may be extended until 3 months after the landlord has given the appropriate notice (the extended period)!
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