Landlords and tenants - six changes to retail leasing legislation

Tuesday October 27, 2020

Landlords and tenants - six changes to retail leasing legislation

Attention landlords and tenants - substantial changes have been made to the Victorian Retail Leasing Legislation

The Retail Leases Amendment Act 2020 received royal assent on 22 September 2020 and introduces some substantial changes to the rights and obligations of both landlords and tenants in Victoria.

1.  Essential safety measures (ESMs)

With effect from 23 September 2020, a landlord is permitted in certain circumstances to pass on to a tenant the cost of repairing and maintaining ESMs (i.e. exit doors, emergency lighting, fire extinguishes, paths of travel to exits, smoke alarms, sprinkler systems, annual inspections).

As a result of VCAT’s advisory opinion handed down on 1 May 2015, the position was that a landlord had to bear the cost of compliance with ESMs and could not pass them on to the tenant as an outgoing.

The Retail Leases Amendment Act 2003 has reversed this position and permits landlords to recover from tenants:

  • ‘the costs of repairs or maintenance work in respect of an essential safety measure’; and
  • ‘in respect of an essential safety measure…the cost of
  • carrying out an installation relating to fit out of the retail premises; and
  • tenants can also be required to carry out repairs or maintenance of an ESM.

Provided the lease allows for it, and an estimate has been given, ESM costs can be recovered from 23 September 2020 onwards.  These changes relate only to retail leases, so the uncertainty created by the Advisory Opinion continues for non-retail leases.

2.  Disclosure statement and a copy of the proposed lease

In relation to new leases, from 1 October 2020, landlords must provide tenants with a Disclosure Statement and a copy of the proposed lease at least 14 days before entering into the lease.  Failure to do so results in the lease commencing 14 days after the required documents are provided to the tenant.  The proposed lease must now also include particulars of the tenant, the rent and the term of the proposed lease.

If any changes are made during the negotiation process (or on renewal) the landlord must inform tenants of the changes made.  A landlord risks a fine of $41,305 for a company and $8,261.50 for individuals if a landlord fails to notify the tenant of those changes.

3.  Return of security deposits

Section 24(1)(d) of the Retail Leases Act 2003 (RLA) has been amended to provide that a security deposit must be returned to a tenant within 30 days of the end of the lease provided the tenant has performed all of its obligations under the lease. This was previously “as soon as practicable after the lease ends”.

The RLA does not specifically deal with the return of bank guarantees after the lease ends.  However, it would be prudent to treat the return of bank guarantees the same way as the return of security deposits is treated in section 24(1)(d) of the RLA.  This amendment applies to retail leases already on foot and to new retail leases entered into after 1 October 2020.

4.  Option notices

Previously when the lease contained an option for the tenant to renew the lease for a further term, the landlord was required to notify the tenant of the latest date to exercise the option between 12 and 6 months before that latest day.

Section 28 of the RLA has been amended to provide that the landlord, at least 3 months before the last date that an option to renew the lease may be exercised, must give the tenant written notice setting out:

  • the date by which the option to renew the lease can be exercised;
  • the rent payable for the first 12 months of the renewed lease;
  • the availability of an early rent review under the Act;
  • the availability of a cooling off period under the Act; and
  • any changes to the most recent disclosure statement provided to the tenant (other than any changes in relation to rent).

If the landlord does not give the notice or notify the tenant of all of the above information, the date after which the option is no longer valid is extended by three months, starting from the date the landlord gives the notice to the tenant.

Where the extended date is after the expiry date in the lease, the lease continues until that date on the same terms and conditions as before the expiry date.  If the tenant doesn’t want the lease to be extended beyond the expiry date, the tenant can give the landlord written notice terminating the lease, providing the lease is not terminated earlier than the date the lease expires.  When the option to renew the lease is exercised, the new term will start on the date the previous lease expires, regardless of any extension.

These changes apply to new retail leases and to retail leases currently on-foot where the last date to exercise the option is on or after 1 January 2021.

5.  Early market rent review

If the lease provides for a current market rent review upon renewal of the lease, the tenant may request an early rent review within 28 days after receiving the Option Notice. If the tenant doesn’t request an early rent review, the tenant must notify the landlord in writing as to whether the tenant exercises the option to renew the lease on or before the last date that the option to renew can be exercised. If a valuer is appointed to determine the rent, the tenant has 14 days after it is notified of the rent determination to exercise the option. The landlord and tenant are to share the costs of an appointment of a specialist retail valuer.

6.  Cooling off

If a tenant has exercised an option to renew a retail premises lease and has not requested an early rent review, the tenant has 14 days to give the landlord a written cooling off notice indicating that they no longer want to exercise that option to renew the lease. If the tenant gives the landlord a cooling off notice, the term of the lease is extended by 14 days and the lease is taken as not having been renewed. The tenant cannot later change its mind and the opportunity to exercise the option to renew the lease will be lost.

We can help…

Whether you are a tenant or landlord, and you'd like some assistance in working out your rights and responsibilities as a result of the amendments, please contact our Commercial leasing team on 03 9550 4600.

Dianne Hodge