Retail Leases Amendment Act adds more pressure for landlords on top of COVID-19 changes

The Retail Leases Amendment Act 2019 (Vic) (Amendment) was passed by the Victorian Parliament on 15 September 2020. These changes are permanent amendments to the Retail Leases Act 2003 (Vic) (RLA) and are separate to the recent temporary changes made to Victorian legislation relating to the COVID-19 pandemic.

These changes to the RLA will likely have a significant impact on the way retail landlords negotiate and finalise retail leases in Victoria. Gadens has assisted the Shopping Centre Council of Australia (SCCA) in its lobbying and advocacy.

Some of the key changes introduced by the Amendment include:

• Provided that a lease is correctly drafted, landlords of retail premises to which the RLA applies can recover the costs in respect of essential safety measures of carrying out repairs or maintenance work or an installation (relating to fit out of the premises for which the tenant has agreed to pay) (ESM Costs). This change is not retrospective and therefore only applies in respect of ESM Costs incurred on or after the date the relevant sections of the Amendment come into effect. For any earlier ESM Costs or for non-retail leases, the uncertainty created by the VCAT Advisory Opinion will continue to apply to those ESM Costs.
• Landlords must now provide a disclosure statement and copy of the proposed lease 14 (instead of seven) days prior to entering into a new lease. Failure to comply will mean that, despite the dates specified in the lease, the term of the lease is taken to commence 14 days after the disclosure statement and copy of the proposed lease are given to the tenant. This may result in the ‘face’ commencement and expiry dates on a lease being inconsistent with the commencement date implied by the RLA and creates uncertainty on a number of key commercial terms such as the rent review dates and the lease expiry date.
• Landlords must notify tenants if a proposed new lease given to a tenant contains any changes to a previous copy of the lease given to the tenant. For landlords who are corporations, failure to comply with this requirement could result in fines being imposed equal to 250 penalty units (which currently equates to $41,305).
• Deleting the word ‘substantially’ from sub-section 17(7) of the RLA. Previously, if a tenant had been given the disclosure statement, the landlord was not required to give a further disclosure statement before entering into that lease so long as the final version of the lease was substantially in accordance with the earlier lease. By removing ‘substantially’, landlords will need to act cautiously and re-issue a disclosure statement for any change made to a lease during the negotiation process.
• Landlords must return security deposits to a tenant within 30 days of expiry of the term (provided the tenant has complied with its obligations under the lease). Previously, the requirement was to return the security deposit ‘as soon as practicable’. Note no changes have been made in relation to bank guarantees.
• Landlords must give notice at least 3 months (instead of 6 months) before the last date that an option to renew the lease may be exercised. Additional information is now required to be given, including details of the rent that will be payable if the option is exercised. This means tenants will be notified of the proposed rent before being required to exercise an option to renew the lease.
• If a market review is due, tenants may elect to initiate an early market rent review, and if they do not elect to do this but proceed to exercise the option to renew the lease, a tenant will be entitled to a cooling off period regarding the exercise of the option.
• The disclosure statement to be provided by a landlord upon renewal (under sub-section 26(1) of the RLA) must set out any changes to the previous disclosure statement given to the tenant in respect of the lease.

The majority of the above changes will come into effect on a date ‘to be proclaimed’ or 1 October 2020, whichever is earlier. Landlords must now urgently take steps to adjust lease management systems and alter long standing leasing practices and procedures to ensure compliance with the amended RLA.

Please contact us if you require assistance or advice in relation to the Amendment.

Authored by:

Shanna Livingstone, Special Counsel
Rebecca Sharman, Senior Associate