|
|
 |
|
|
| | The lease will generally set out who is responsible for maintaining the premises. The tenant is usually responsible for keeping the premises clean and in good repair, subject to "fair wear and tear", over the term of the lease.
For example, a tenant may be required to keep the carpets clean by having them steam cleaned once a year at the tenant's cost. However, when the carpet cannot be kept clean any longer because the carpet is so worn and torn through continual use, the carpet will require replacing by the landlord at the landlord’s cost.
Another typical example under the lease is that the tenant may be required to enter into a maintenance contract for the regular servicing of the air conditioning system that the landlord owns, at the tenant's cost. The tenant can only maintain the air conditioning system by having it serviced on a regular basis in so far as the air conditioning continues to function. Once the air conditioning system is no longer able to function because it needs updating, the landlord must invest in replacing or repairing the system as it is at the end of its economic usefulness.
The Retail Leases Act 2003 now makes it clear who's responsibility it is to undertake certain repairs by prescribing that certain statutory provisions are to be included into retail premises leases. If there are provisions in the lease on repairs, the Retail Leases Act 2003 provisions will override them in so far as they are inconsistent with the provisions in the lease.
Section 52 of the Retail Leases Act 2003 provides, as a general rule, that the landlord is responsible for maintaining (in the same condition as the premises were in when the lease was entered into) the following items:
- the structure of the premises (ie. the walls and the roof);
- the fixtures in the premises (ie. items belonging to the landlord such as built-in shelving);
- the plant and equipment at the premises (ie. such as the air conditioning system); and
- the appliances, fittings/fixtures that the landlord has provided under the lease relating to the services such as gas, electricity and water (ie. powerboards, water pipes, hot water system).
The exceptions to the general rule in section 52 are that the landlord is not responsible for maintaining those items if:
- the need for the repair arises out of the tenant's misuse of that item (see section 52(3)(a)); and
- the tenant is entitled or required by the lease to remove the item at the end of the lease (see section 52(3)(b)).
An example of the first exception (by using the air conditioning scenario above) is if the tenant does not service the air conditioning system regularly, as the tenant is required to do under the lease, and as a result the air conditioning system falls into disrepair. In this situation the landlord is not responsible for replacing the system. The tenant has misused the item and is responsible for its repairs at the tenant's cost.
An example of the second exception is where the tenant is required by the lease to install a shopfront and have it removed at the end of the lease. The shopfront remains the property of the tenant. This means that the landlord is not required to maintain it.
Similarly, if the tenant must install a supplementary air conditioning system to accommodate the extra lighting required for the tenant's particular use of the premises (ie. a jeweller's store that requires an increased amount of illumination) the supplementary air conditioning system belongs to the tenant and the tenant is entitled to remove it at the end of the lease. This means that the landlord is not required to maintain the supplementary air conditioning system, but is required, however, to maintain the primary system.
Note, section 52 relates to leases to which the Retail Leases Act 2003 applies. There are identical provisions that relate to leases to which the Retail Tenancies Reform Act 1998 and the Retail Tenancies Act 1986 apply (see sections 107 and 116 of the Retail Leases Act 2003 respectively).
|
| |
| | Section 39 of the Retail Leases Act 2003 provides that in order for the landlord to be able to recover the cost of outgoings (which may include the costs of maintenance) from the tenant, the outgoings must be specified in the lease. This is usually found in the “outgoings” section or “definition” section of the lease. If maintenance costs are not itemised, these costs cannot be recovered from the tenant, and the liability to pay for such costs lies with the landlord.
For example, such costs that may be itemised in the lease that are directly recoverable from the tenant, because they relate to the premises, are the costs of:
- installing new light fittings;
- drycleaning of carpet;
- cleaning of shopfront windows; and
- regular maintenance of the air conditioning system.
On the other hand, costs that may be itemised in the lease that are recoverable from the tenant on a proportionate basis, because they relate to the common areas of the building in which the premises are located or the building itself, are the costs of:
- cleaning of the toilet facilities;
- garbage collection fees;
- garden maintenance;
- external window cleaning; and
- section 52-type repair items, providing they are not “capital costs” as defined by section 41 of the Retail Leases Act 2003 (for further information on section 52 “landlord’s liability for repairs”, please see above Q & A “who is responsible for maintaining the premises?”).
Note, when a repair is urgent, and the tenant has taken reasonable steps to arrange for the landlord to undertake the repair but the landlord fails to do so, the tenant can undertake and pay for the repair and recover the reasonable cost of the repair from the landlord (see sections 52(4) and (5) of the Retail Leases Act 2003). However, the landlord can recover the cost of the repair from the tenant at a later stage as an “outgoing” providing it is in accordance with section 39 of the Retail Leases Act 2003.
|
| |
| | The procedure for assigning a lease is usually set out in the “assignment” section of the lease. However all provisions in the lease must be read subject to Part 7 of the Retail Leases Act 2003 which sets out the minimum standards for assigning a lease.
Providing the proposed tenant with a disclosure statement and other documents
Section 61 of the Retail Leases Act 2003 sets out the procedure for obtaining consent to the assignment of the lease. Section 61 provides that before the tenant seeks the consent of the landlord, the tenant must give the proposed tenant a copy of the disclosure statement that the tenant received from the landlord when the tenant entered into the lease. If any of the details of the disclosure statement have changed of which the tenant is aware, or could be reasonably expected to be aware, the tenant is required also to disclose these details to the proposed tenant. There is a penalty of up to 10 penalty units if the tenant fails to provide the proposed tenant with this information (see section 61(3)).
To undertake this requirement, the tenant may ask the landlord to give the tenant a new disclosure statement that is no more than 3 months old from the date of the request. If the landlord receives such request, the landlord must provide the new disclosure statement within 14 days. If the landlord fails to do so within 14 days of the request, the tenant is not required to provide the proposed tenant with a disclosure statement, as specified in section 61(3). There is a penalty of up to 10 penalty units if the landlord fails to oblige the tenant's request to provide an updated disclosure statement (see section 61(3) and (5)).
Note, if the assignment involves the sale of a business and the premises will continue to be used in the same way, there are different disclosure requirements. The requirements specified by section 61(5A) of the Act are:
- that the disclosure statement given to the proposed tenant is to be in the same form as prescribed by the Retail Leases Regulations 2003 (although the layout does not need to be the same as the prescribed disclosure statement); and
- a copy of the disclosure statement must also be given to the landlord.
If the tenant has given the landlord and the proposed tenant a new disclosure statement as set out in section 61(5), and providing the disclosure statement does not contain any information that is false, misleading or materially incomplete, the tenant (and any guarantors that the tenant may have) will be released from any obligations under the lease or to pay to the landlord any money in respect of amounts payable by the proposed tenant (see section 62).
Note this release of liability does not apply to tenants where the assignment does not involve the sale of a business.
In addition, where the assignment involves the sale of a business the tenant must also provide the proposed tenant with business records of the last 3 years (or such shorter period as the tenant has carried on the business at the premises). See section 60(1)(d) of the Act.
Tenant’s request to the landlord
Section 61 of the Retail Leases Act 2003 specifies that the tenant’s request must be in writing, and accompanied by such information the landlord reasonably requires about the financial resources and business experience of the proposed tenant.
Timeframe for the landlord to deal with the request for consent
Pursuant to section 61(6) of the Retail Leases Act 2003, once the tenant’s request for consent to assignment has been received by the landlord, the landlord must provide the tenant with a response expeditiously. In any event, consent will be deemed accepted by the landlord if:
- the tenant has complied with its obligations under section 61 (ie. to put the request in writing, provide the requested documents to prove the proposed financial stability, and provide the proposed tenant (and the landlord, if the assignment involves a sale of business) with the relevant disclosure statement); and
- the landlord has not provided the tenant with a written notice that the landlord has consented or withheld its consent to the assignment within 28 days of the tenant’s request.
When the landlord can withhold consent to the assignment
Section 60 sets out the reasons by which the landlord is entitled to withhold consent. This section overrides any other reasons specified in the lease. The reasons are:
- the proposed tenant proposes to use the premises in a way that is not permitted under the lease (for example the proposed tenant wishes to use the premises as a restaurant when the permitted use under the lease is a sports store);
- the landlord considers that the proposed tenant does not have the financial resources or business experience to meet the obligations under the lease (for example the proposed tenant is a first time fashion retailer who would be replacing a fashion retailer which has over 300 stores);
- the tenant has not complied with the reasonable assignment provisions of the lease (these may include, for example, any of the steps involved in the procedure for obtaining the landlord’s consent to assignment set out in section 61 (see above)); and
- where the assignment involves the sale of a business the tenant has not provided the proposed tenant with business records of the last 3 years (see above).
|
| |
| | When the lease contains an option for the tenant to renew the lease for a further term, the Retail Leases Act 2003 specifies that the landlord must give a notice to the tenant reminding the tenant of the date after which the option is no longer exercisable, as specified in the lease. Section 28 of the Retail Leases Act 2003 specifies the relevant time requirements for this notice.
Section 28(1) provides that this notice must be given at least 6 months, but no more than 12 months, before that date after which the option is no longer exercisable. However if the tenant exercises the option before the tenant receives the notice from the landlord, the landlord is not required to provide the notice.
For example, the lease specifies that the tenant must exercise the option no later than 6 months prior to the expiry of the lease. The lease expires on 31 December 2007. As the last date to exercise the option is 30 June 2007 (being 6 months prior to the expiry date), the landlord must give the notice at any time between the dates of 30 June 2006 and 31 December 2006, effectively giving the tenant at least 6 months to consider whether to exercise the option. Note, if the tenant exercises the option on 30 September 2006, and the landlord has not yet given the notice, the landlord is not required to give the notice.
If the landlord fails to give the notice in the time specified by section 28(1), the date after which the option is no longer exercisable is given a statutory extension of 6 months after the landlord eventually 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 applied immediately before the expiry date.
Using the example above, if the landlord fails to provide the notice between 30 June 2006 and 31 December 2006, and eventually provides the notice on 30 September 2007, the date after which the option is no longer exercisable becomes 31 March 2008 (the statutory extension of 6 months) and the new expiry date becomes 30 September 2008.
However, if the tenant does not wish for the lease to be extended beyond the expiry date, the tenant can give the landlord a written notice terminating the lease (providing the lease is not terminated any earlier than the date of expiry specified in the lease). See section 28(2) and (3).
Irrespective of the statutory extension, once the option is eventually exercised, the new term will commence the day after the expiry date of the previous lease (see section 28(4)).
|
| |
| | When the lease does not contain any options to renew the lease for a further term, the Retail Leases Act 2003 specifies that the landlord must give a written notice to the tenant setting out the landlord’s intentions concerning renewal. Section 64 specifies that the notice must either:
- offer the tenant a renewal of the lease (on the terms specified in the notice); or
- inform the tenant that the landlord does not propose to offer the tenant a renewal of the lease.
The time period by which the landlord must provide the notice is at least 6 months, but no more than 12 months, before the expiry date. If the landlord fails to give the notice in the time specified, the lease is extended by 6 months after the date on which the landlord eventually gives the notice to the tenant.
For example, if a lease expires on 31 December 2008, the landlord must give the notice at any time between the dates of 31 December 2007 and 30 June 2008. If the landlord fails to give the notice between these dates, and eventually gives the notice to the tenant on 30 September 2008, the lease is extended by 6 months from that date, and will expire on 31 March 2009, on the same terms and conditions as applied immediately before the expiry date.
However, if the tenant does not wish for the lease to be extended beyond the expiry date because of the landlord’s failure to provide the notice, the tenant can give to the landlord a written notice terminating the lease (providing the lease is not terminated any earlier than the date of expiry specified in the lease).
|
| |
| | Retail tenancy disputes are dealt with under Part 10 of the Retail Leases Act 2003. A retail tenancy dispute is widely defined by section 81(1) to mean a dispute between a landlord and tenant (including a former landlord and tenant):
- arising under, or in relation to, a lease of retail premises to which any of the retail tenancies Acts applies or applied;
- arising under any provisions of the retail tenancies Acts in relation to a lease to which that Act applies or applied; or
- arising under a lease of retail premises to which none of the retail tenancies Acts applies or applied.
However, a retail tenancy dispute does not include a dispute solely relating to the payment of rent, or the setting of rent values (see section 81(2)).
Pursuant to section 85, a dispute may be resolved by first requesting the Small Business Commissioner for preliminary assistance. It is not necessary to make a formal application for preliminary assistance, rather, the parties may call the Office of the Small Business Commissioner directly via the Victorian Business Line, on 13 22 15.
If the preliminary assistance does not resolve the dispute, the parties can refer the dispute to the Small Business Commissioner for mediation (see section 86). The relevant application form is available by clicking here.
If the Small Business Commissioner considers it appropriate, the Small Business Commissioner may join other parties to the mediation (see section 86(2A)). These may include bodies corporate, estate agents, head landlords, subtenants, assignees/assignors, and guarantors. Applicants should request the Small Business Commissioner to consider joining other parties on the mediation application form.
If it is necessary for the parties to proceed to mediation, the Small Business Commissioner will ask that the parties pay the relevant fee on the date of mediation. The mediator, appointed by the Small Business Commissioner, will meet with the parties and attempt to assist the parties to come to a resolution of the dispute. If the mediation is successful, the agreed terms are written up and signed by the parties as a contract of agreed terms. The parties must fulfil their agreed obligations as set out in the agreed terms.
If the mediation did not resolve the dispute, the Small Business Commissioner will certify that the parties had attempted mediation but it was unsuccessful. With the certificate, the parties are free to apply to the Victorian Civil and Administrative Tribunal to have the dispute resolved in that forum.
Note, an applicant cannot apply directly to the Tribunal without having first attempted mediation facilitated by the Small Business Commissioner (see section 87).
|
| |
| | Retail premises are defined in section 4 of the Retail Leases Act 2003.
What are retail premises is defined in section 4(1) as generally premises that are to be used wholly or predominantly for the sale or hire of retail goods or services. Although the Minister can also determine that a kind of business shall be included as “retail”.
Section 4(2) sets out what are not retail premises. These are where:
- the lease of the premises exceeds the total occupancy cost threshold (which includes rent and outgoings) set out by the Retail Leases Regulations 2003 (which is currently set at $1m);
- the business involves the tenant acting as the landlord’s agent;
- the tenant is, or is a subsidiary of, a listed corporation;
- the tenant is a body corporate, or a subsidiary of a body corporate, whose securities are listed on an overseas stock exchange;
- the business, the premises, or the tenant, is a kind of business, premises, or tenant, that the Minister determines as exempt from the application of the Act.
The Small Business Commissioner has prepared detailed guidelines on the meaning of retail premises, which can be accessed by clicking here.
|
| |
| | Section 54 of the Retail Leases Act 2003 sets out the compensation provisions that apply to retail premises. Section 54(2) provides that the landlord is liable to pay the tenant compensation for loss or damage suffered by the tenant because the landlord, or person acting on the landlord’s behalf (which may include the landlord’s agent or management company):
- inhibits the tenant’s access to the premises;
- takes action that inhibits or alters the flow of customers to the retail premises;
- takes action that causes disruption to the tenant’s trading;
- fails to prevent or stop disruption to the tenant’s trading;
- neglects to clean, maintain or repair the building in which the premises are located; or
- fails to rectify:
- any breakdown of the landlord’s plant and equipment that affects the tenant; or
- any defect in the premises or the building in which the premises are located. In order to make a claim for compensation, the tenant must give the landlord written notice of the loss or damage suffered, however failure to do so does not affect the tenant’s right to claim compensation (see section 54(3)). The amount of compensation is to be agreed between the landlord and tenant, and failing agreement, as determined under the dispute resolution provisions of the Act.
Note section 54(4) provides that the tenant cannot make a claim for compensation if the action of the landlord is the result of:
- a response to an emergency; or
- in compliance with any duty imposed by legislation or by an authority.
|
| |
| | The lease will usually specify the procedure and time periods for establishing market rent. If the lease is a retail premises lease, sections 35 to 37 of the Retail Leases Act 2003 is to be read into, and override any inconsistent provisions, in the lease.
Section 35(5) provides that a rent review is to be conducted as early as practicable within the time provided in the lease. If the landlord has not initiated the review within 90 days from the date of review, the tenant may initiate the review.
Section 37(2) specifies the meaning of current market rent. It provides as follows:
"The current market rent is taken to be the rent obtainable at the time of the review in a free and open market between a willing landlord and willing tenant in an arm's length transaction having regard to these matters—
(a) the provisions of the lease;
(b) the rent that would reasonably be expected to be paid for the premises if they were unoccupied and offered for lease for the same, or a substantially similar, use to which the premises may be put under the lease;
(c) the landlord's outgoings to the extent to which the tenant is liable to contribute to those outgoings;
(d) rent concessions and other benefits offered to prospective tenants of unoccupied retail premises—
but the current market rent is not to take into account the value of goodwill created by the tenant's occupation or the value of the tenant's fixtures and fittings."
Note, the Retail Leases Act 2003 also prohibits any provision in a lease that provides that the current market rent is not to be less than the previous year's rent (see section 35(3)).
If the landlord and tenant are unable to agree on the current market rent having regard to the above factors, the rent is to be determined by a valuation carried out by a specialist retail valuer who is appointed by agreement between the landlord and tenant, and failing agreement, by the Small Business Commissioner. To request the Commissioner to appoint a valuer, it will be necessary to make a written application together with a copy of the lease. For further information, click here. The cost of the valuation is to be paid by the landlord and tenant in equal shares. See section 37(3).
Upon request, the landlord must provide the valuer, within 14 days, with information about leases for retail premises located in the same building or shopping centre to assist the valuer in determining the rent. If the landlord fails to comply with the request:
- the landlord may be liable for 50 penalty units (section 37(4)); and
- the valuer may seek to enforce the obligation of the landlord under the dispute resolution provisions of the Act (section 37(7)(b)).
Section 37(6) of the Act provides that the valuer's valuation must:
- be in writing;
- contain reasons for the valuer's determination; and
- specify the matters to which the valuer had regard in making the determination.
The valuer must carry out the valuation within 45 days after accepting the appointment to act, or such longer period as agreed between the landlord and tenant, or if no agreement, as determined in writing by the Small Business Commissioner (section 37(7)(a)).
|
| |
| | The landlord will have to renew a lease if the lease contains an option to renew, and the tenant has validly exercised the option. For further information on the relevant notices that must be given by the landlord and tenant in order to exercise an option please see above Q & A 4 “What notices are required of the landlord when the tenant has an option to renew?”. Where a lease contains no options, the landlord is not obliged to renew the lease, even if the tenant has developed substantial goodwill in the premises. This is made clear in section 79(b) of the Retail Lease Act 2003 which specifies that failing to renew the lease does not amount to unconscionable conduct.
The landlord is however required to provide the tenant with notice of the landlord's intentions as to whether the landlord wishes to renew the lease or not. For further information on this notice please see above Q & A 5 “What notices are required of the landlord when there are no options to renew?”.
The only circumstance where a landlord is required to renew the lease is where the tenant has been in continuous possession of the premises for less than 5 years and the tenant has not obtained a certificate waiving the tenant's right to a lease of 5 years (as per section 21 of the Act).
Note that for some leases, for example hotel leases, it is common for the landlord to ask the tenant to pay a premium to the landlord for the renewal of the lease, or the granting of an option. This is permitted by the Act, providing that the payment is considered "good consideration" for the benefit received, that is, the value of the renewal of the lease or the granting of the option. However, if the payment is not in proportion to the benefit received it will be considered void and the tenant can seek to recover from the landlord the money paid for the premium. See sections 23 and 3, definition of "key money".
|
| |
| | The landlord must provide the tenant with the following information in relation to outgoings:
Copy of the lease at negotiation stage
Section 15 of Retail Leases Act 2003 provides that as soon as negotiations are entered into, the landlord must provide the tenant with a copy of the lease which must describe the type of outgoings that the tenant is expected to pay throughout the term. The landlord may be liable for 50 penalty units if the landlord fails to provide the copy of the lease at negotiation stage.
Disclosure statement
Section 17 of the Act provides that a landlord must give a disclosure statement to the tenant at least 7 days prior to entering into the lease. The disclosure statement must include estimates of the outgoings that the tenant is expected to pay in the first year of the lease. If the disclosure statement is not provided, the tenant is not liable for the payment of rent if the tenant has provided the landlord with written notice within 7 days before, or 90 days after, entering into the lease.
Estimate of outgoings
Section 46 of the Act provides that the landlord must give the tenant a written estimate of the outgoings for which the tenant is expected to pay under the lease. The estimate must be given before the lease is entered into, and one month before the end of the landlord's accounting period. The tenant is not required to pay for outgoings until the estimate is given.
Statement of outgoings
Section 47 of the Act provides that the landlord must prepare a written audited statement that details all the landlord's expenditure in each of the landlord's accounting periods on account of outgoings to which the tenant is liable to contribute. The landlord must give the statement to the tenant no later than 3 months after the end of each accounting period. Note the statement does not have to be an audited statement if the tenant is only required to pay for GST, utilities, council taxes and insurance, and the statement is accompanied by the relevant invoices, assessments or receipts.
Advertising and promotion statement
If the tenant is located in a shopping centre, section 71 provides that the landlord must provide a written audited statement that details all expenditure by the landlord in each of the landlord's accounting periods on account of advertising and promotion costs. The landlord must give the statement to the tenant no later than 3 months after the end of each accounting period.
Example
Consider that the tenant is leasing retail premises from the landlord which forms part of a shopping centre. The landlord's accounting period is the financial year, the end of which is 30 June. The information that the landlord must provide to the tenant is:
Before entering into a lease:
- a copy of the lease at negotiation stage;
- a disclosure statement; and
- an estimate of outgoings.
By 31 May each year of the lease term:
- an estimate of outgoings.
By 30 September each year of the lease term:
- a written statement of outgoings (which is to be audited if the tenant pays outgoings additional to statutory rates, taxes and insurance); or
- audited advertising and promotion statement.
|
| |
|
|
 |
|
|
|
 |
|
|
 |
|
|
 |
|
|
| You can subscribe to receive a newsletter and more information from us in the future. |
|
|
|
|
|
