On 22 April 2013, the Retail Leases Regulations 2013 (“new Regulations”) commenced operation and replaced the Retail Leases Regulations 2003 (“former Regulations”).
The retail leases market in Victoria is now regulated by the Retail Leases Act 2003 (Vic) (“the Act”) and the new Regulations.
The new Regulations:
- amend the amount of occupancy costs under a retail lease that will exclude a retail premise from the coverage of the Act;
- prescribe forms of disclosure statements for a landlord to provide to prospective retail tenants, or to retail tenants renewing a retail lease;
- prescribe a form of disclosure statement for an outgoing tenant assigning a retail lease to provide to the incoming tenant;
- clarify that a statement of outgoings doesn’t have to be accompanied by an auditor’s report if it includes owners corporation fees and a fire services property levy.
Excluded retail premises
The Act excludes from the definition of “retail premises” – premises whose occupancy costs per annum are more than the amount prescribed by Regulation 6. The former Regulations prescribed an amount of $1,000,000. The new Regulations clarify that this amount is exclusive of GST. This amendment will have the effect of bringing more premises within the Act’s coverage.
Introduction of four disclosure statements
The most significant amendment to the former Regulations is the replacement of the existing disclosure statement with four separate disclosure statements:
- landlord’s disclosure statement – retail premises not located in retail shopping centres
- landlord’s disclosure statement – retail premises located in retail shopping centres
- landlord’s disclosure statement on renewal of lease
- disclosure statement – assigned lease where ongoing business.
There are time stipulations for the giving of the applicable disclosure statement. Significant new items in the disclosure statements are:
- Each of the four new forms requires the disclosure of any alteration or demolition works, planned or known at the time, to the premises or building/centre (including surrounding roads and to the land adjacent to or in close proximity to the premises or building/centre) during the term or any further term or terms and
- The statement for the assignment of a lease also requires a tenant to disclose any matter not connected to the lease agreement, planned or known to the tenant, which may materially affect the viability of the ongoing business over the remaining lease period.
The Statement of Reasons for this new item as provided by the Department of State Development, Business and Innovation is:
Following concerns expressed to the Minister, the Disclosure Statements have been strengthened to further protect tenants from interruptions to their business caused by planned works which were known by the landlord [or assignee] when a lease agreement was signed but which were not revealed to the tenant. The new Disclosure Statements require landlords/assignors to inform a tenant/assignee of any alteration or demolition works, planned or known to the landlord/assignor, to the premises or building/centre, including surrounding roads, or to land adjacent, or in close proximity, to the premises or building/centre, during the term or any further term(s) of the lease.
This disclosure requirement could create difficulties for landlords and assigning tenants, as use of the word “or” (as highlighted above) appears to require them to disclose works that are both known to them and those that are planned, but of which they may initially have no knowledge. This includes alteration or demolition works to the land adjacent to or in close proximity of the premises. If that interpretation is correct it will mean landlords and assigning tenants must make extensive enquiries to ensure that they disclose any works planned for the premises or for surrounding land and roads. A tough ask!
Matters affecting viability of an ongoing business
The disclosure statement to be given by a tenant when proposing to assign a lease as part of the sale of an ongoing business also requires disclosure of matters about which the tenant would not necessarily have any knowledge. This obligation is far reaching and requires a tenant to disclose “any matters not connected to the lease agreement, planned or known to the tenant at this point in time that may materially affect the viability of the ongoing business over the remaining lease period”. Compliance with this obligation may necessitate disclosure of the same information about any alteration or demolition works as referred to in the above paragraph.
If an assigning tenant fails to make adequate disclosure, the tenant may lose the protection afforded under section 62 of the Act. Under that section, and assuming its other requirements have been satisfied, a tenant who has transferred a lease is not liable for any breaches of the lease after an assignment provided the tenant has not disclosed any false, misleading or materially incomplete information in the disclosure statement provided to the prospective assignee or transferee of a lease.
When preparing disclosure statements, assigning tenants will now have to source more information from a landlord or shopping centre management, and conduct their own enquiries about proposals “planned” for surrounding land or premises, in order to obtain the protection of section 62 of the Act.
Statement of outgoings
Section 47 of the Act requires a landlord to prepare a written statement that details all expenditure by the landlord in each of the landlord’s accounting periods during the term of the lease, on account of outgoings to which the tenant is liable to contribute. The outgoings statement will need to be accompanied by an auditor’s report but not if it –
- does not relate to any outgoings other than GST, water, sewerage and drainage rates and charges, municipal council rates and charges, insurance, and now owners corporation fees and fire service property levy; and
- is accompanied by copies of assessments, invoices, receipts or other proof of payment for all expenditure by the landlord included in the statement.