Since the issue of VCAT’s advisory opinion in May 2015 (Opinion), the retail leasing sector has been grappling with uncertainty about a landlord’s ability to recover from a tenant certain costs incurred in complying with the Building Act 1993 (Vic) (Building Act).
In response to the Opinion and the Business Regulation Review into the retail sector in 2018, the Government has now introduced the Retail Leases Amendment Bill 2019 (Bill) into Parliament to alleviate the uncertainty. The main changes to the Building Act and the Retail Leases Act 2003 (RLA) proposed by the Bill, are as follows:
1. Essential safety measures (ESM) – landlords will be able to:
- require a tenant to carry out, or cause to be carried out, repairs or maintenance in respect of ESMs; and
- recover from a tenant its costs of complying with provisions of the Building Act in respect of repair or maintenance work to ESMs,
provided that the tenant has expressly agreed to carry out such works or pay such costs.
Importantly, a landlord’s ability to require a tenant to carry out ESM works will not displace a landlord’s obligations as building owner under the Building Act. Therefore, a landlord can still be liable for non-compliance under the Building Act notwithstanding that its tenant is responsible for carrying out the relevant ESM works under its retail lease.
However, these amendments will not permit a landlord to recover outgoings in respect of ESM works which were payable prior to the commencement of the Bill.
2. Earlier provision of disclosure statements – landlords will be required to provide a disclosure statement and copy of a proposed retail lease (incorporating the proposed tenant’s name, rent and term), at least 14 days prior to the date that the parties enter into the retail lease. The RLA currently requires this to be done 7 days before the parties enter into a retail lease.
3. Return of security deposits – landlords will be required to return security deposits to a tenant within 30 days after the end of the retail lease, except where a landlord is otherwise entitled to retain the security deposit (for example, if the tenant is in breach).
4. Landlord notice of further term – at least 3 months before the last date for a tenant to exercise its option for a further term, the landlord must give the tenant notice of that date and other prescribed information (including the rent that will be payable for the first 12 months of the renewed lease). Currently, the RLA requires such notice to be given between 6 – 12 months prior to the last date for the tenant to exercise its option, and the notice is not required to specify the proposed rent. A failure to provide such notice will result in the option date being extended until 3 months after the date that the landlord provides the notice.
5. Early rent review – if a retail lease provides for a market rent review at the commencement of a further term, the tenant may request a review of the landlord’s proposed rent, within 28 days after the landlord provides a renewal notice (that is, before the end of the current term and before it is required to exercise its option). The tenant’s option period will also be extended until 14 days after the date that the reviewed market rent is determined.
6. Cooling off – if a retail lease provides for a market rent review at the commencement of a further term, and a tenant exercises its option to renew without requesting an early rent review, that tenant will be entitled to a 14-day cooling off period after it exercises its option within which it may advise the landlord that it no longer wishes to renew.
We will continue to monitor the progress of the Bill through the Houses of Parliament and provide an update once it has received Royal Assent.
In the meantime, if you have any queries or require more detailed advice on the implications of the Bill, please contact the authors or key contacts.
|Jonathon Meehan | Senior Associate
T +61 3 9258 3015
|Guy O’Connor | Partner
T +61 3 9258 3522