Retail Leases Amendment (Review) Act 2017...2017/11/04 · Retail Leases Amendment (Review) Act 2017 Retail leases reform has been in prospect since April 2008, with several false

Retail Leases

Amendment

(Review) Act 2017AICNSW Webinar 10 March 2017

Tony Cahill

Scope of this presentation

State of play with the amending legislation

The long path to retail leases reform

Some recurring “hot topics”

Key amendments of interest to property law

practitioners

Revising the industry standard forms

Impact of strata law reform on leasing

2

Retail Leasing Reform

Last major legislative changes took effect 1/1/2006.

April 2008 Discussion Paper.

January 2011 Consultation Draft Bill.

December 2013 Discussion Paper.

November 2016 Bill introduced into Parliament.

21 February 2017 Bill passed both Houses unamended.

1 March 2017 Royal Assent.

? Commencement date.

? A Retail Leases Regulation 2017??

3

Retail Leases Amendment

(Review) Act 2017

Retail leases reform has been in prospect since April

2008, with several false starts.

The 2017 Act sets out the most wide-ranging

amendments since 2005.

Possibility (but no certainty) of an accompanying

Regulation.

Best guess for commencement is late Q2 2017 or else Q3

2017 (some speculation of 1/7/17) – if there are to be

accompanying Regulations possibly later.

4

Hot topics as at 2008

• the statutory appointment of a Retail Advocate;

• mandatory education for retail tenants;

• access and charging arrangements for parking

facilities;

• the time period for bringing pre-lease

misrepresentation claims;

• remedies for non-disclosure or incomplete

disclosure;

• the provision of disclosure statements when an

agreement to lease has been entered into;

• registration of leases and lease documentation;

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Hot topics as at 2008 – 2

• fit-outs;

• outgoings;

• alterations and relocation;

• landlord use of advertising or promotional funds

contributed by tenants;

• introduction of competition or change of

tenancy mix in a shopping centre;

• strata schemes causing significant disturbances

to a tenant’s business;

• failing businesses in statutory five year leases;

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• bank guarantees;

• the passing on of land tax to tenants;

• end of lease issues;

• damaged premises;

• unconscionable conduct and unfairness;

• retail advisers;

• the conduct of parties in mediation; and

• the monetary jurisdictional limit of the Tribunal.

The tenor of the discussion paper was markedly pro-tenant.

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Hot topics as at 2011

The Consultation Draft Bill dealt with 29 discrete areas

of proposed amendment.

Among the more interesting provisions it was proposed:

(b) to make it clear that shop premises in an office tower

that forms part of a retail shopping centre are not excluded

from the operation of the principal Act if they are used for

a retail shop business listed in Schedule 1 to the principal

Act,

(f) to add the cost of outgoings to the list of costs that a

lessee is not required to contribute to unless the liability is

disclosed in the lessor’s disclosure statement {specifically,

prohibiting the landlord passing on land tax as outgoing],

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(g) to provide that if the lessor and lessee cannot agree on

the maximum cost of, or a formula for calculating the cost

of, fit-out works before the lease is entered into, the

maximum cost is to be determined by an independent

quantity surveyor,

(h) to require all retail shop leases that are for a term of 3

years or more to be registered under the Real Property Act

1900 and to include a summary statement for the lease,

(i) to make it clear that the decision to enter into a retail

shop lease for a term of less than the minimum 5 years is at

the discretion of the lessee,

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(l) to prohibit the recovery from a lessee of any outgoings attributable to land tax,

(n) to increase from 2 months to 6 months the period of notice required to be given to a lessee of an alteration or refurbishment that is likely to adversely affect the business of the lessee,

(o) to require a lessor, if practicable, to offer alternative accommodation of reasonably comparable commercial value when relocating a lessee, and to enable a lessee to recover the lessee’s depreciated fit-out costs if the alternative accommodation offered is not of reasonably comparable commercial value and the lessee terminates the lease,

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(r) to make it clear that it is the responsibility of the lessee to

provide sufficient information to the lessor to enable the lessor

to be reasonably satisfied as to whether any circumstances

exist that entitle the lessor to withhold consent to the

assignment of a retail shop lease,

(s) to simplify the drafting of the procedure to be followed by

a lessee to obtain the consent of the lessor to an assignment of

lease,

(t) to entitle a lessee after the end of a retail shop lease to a

refund of unexpended contributions made by the lessee

towards advertising and promotion of a retail shopping centre,

(u) to increase the monetary limit on the jurisdiction of the

Tribunal from $400,000 to $750,000,

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(x) to provide that the Registrar of Retail Tenancy Disputes

may receive and investigate complaints about the conduct

of a party to a retail shop lease,

(y) to provide that a court is to have regard to an industry

code of practice prescribed by the regulations for the

purposes of establishing accepted practices and

interpretations within the industry concerning the leasing

of retail shops,

(z) to provide for the issue of penalty notices for offences

under the principal Act or the regulations,

(aa) to provide a statement of the objects of the principal

Act,

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The 2013 Review – 8 broad topics

(with numerous subtopics)

Information asymmetry

Outgoings

Fidelity of the bargain

Streamlining / simplification

Fair dealings – including a test of Good Faith

Coverage of the Act

Reduce prescriptive regulation – including Minimum

Term (s 16)

Technical issues

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One controversy in the 2013

Review

Item 1.1 Information Asymmetry – How to know if it is a

good deal

The PC Report 2008 recommended that a summary sheet of

information be included in lease documentation lodged in a

publically (sic) assessable site. Other jurisdictions including

Queensland are considering information asymmetry issues.

Source: PC Report 2008

Confidentiality of financial arrangements v Industry info?

Publication of side deals?

Registration of all side deals?

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Another controversy in the

2013 Review

2.3 Outgoings – Land Tax

Tenant representatives have submitted that land tax is an

ownership expense rather than an operating expense and

therefore should not be recoverable from the tenant as an

outgoing.

Landlords in WA and Tas are able to recover land tax.

Conversely, landlords in Vic, Qld and SA are prohibited from

recovering land tax from tenants. The NT and ACT do not

charge land tax on commercial properties.

2.3.a. Would there be a benefit or detriment if landlords

are prohibited from recovering land tax from tenants?

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2017 Review Act key topics

Drawn from the EM to the 2016 Bill.

Enhanced compensation rights and lessor disclosure

obligations.

Mandatory registration of leases with a term exceeding

three years.

Excluding premises used wholly for (e.g.) ATMs, vending

machines, public phones, children’s rides etc.

Clarifying that a lessor is not entitled to recover

mortgagee consent fees from the tenant.

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2017 Review Act key topics 2

Repeal existing section 16 (described in the EM as “to

remove the requirement for a 5-year minimum term for

retail shop leases”).

Mandating return of a bank guarantee to the tenant

once “the lessee has preformed all obligations

secured”.

Clarification of certain definitions in the Act (e.g

“outgoings”, “turnover” and what constitutes

“proposed demolition).

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Increase in Tribunal jurisdiction both monetary

$750,000) and powers (e.g. rectification).

Specialist retail valuers to be appointed by the Registrar

not the Tribunal.

Clarification of assignment procedures (new sections 41

and 41A).

Introducing an online retail bond service.

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clarify the application of the Act to shops that are stalls

in a market – the Act will not apply to stalls in a market

except a permanent retail market.

allow the regulations to modify the operation of the Act

in relation to shops in a permanent retail market,

including by providing for a mandatory code of conduct.

removing an unnecessary exception from the Act for

premises in an office tower that forms part of a retail

shopping centre (on the basis that an office tower

above a retail shopping centre does not form part of the

retail shopping centre).

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The 2017 Review Act in detail

Section 3 – definition of “lease preparation expenses”

Omit “, except for registration fees under the Real

Property Act 1900”.

Insert instead “including expenses incurred in connection

with obtaining the consent of a mortgagee but does not

include registration fees under the Real Property Act

1900”.

Note the EM describes this as a “clarification”.

Might it have been useful to have also dealt with

obtaining the consent of a head lessor explicitly?

20


Section 3 continued:

The stalls in a market are not “a cluster of premises”

for the purposes of determining a “retail shopping

centre” (but see s 6B).

New subsection 3(2):

(2) A reference in this Act to the lessor or the lessee, in

the context of a provision that has application to a

proposed retail shop lease, includes a reference to the

proposed lessor or proposed lessee.

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New section 3A: Definition of “outgoings”

(1) In this Act, outgoings means the following:

(a) a lessor’s outgoings on account of expenses attributable to the management, operation, maintenance or repair of the retail shop building or land,

(b) a lessor’s outgoings on account of rates, taxes, levies, premiums or charges payable by the lessor because the lessor is the owner or occupier of the retail shop building or land or is the supplier of a taxable supply (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 of the Commonwealth) in respect of the retail shop building or land,

(c) fees charged by a lessor for services provided by the lessor in connection with the management, operation, maintenance or repair of the retail shop building or land.

(2) In this section, retail shop building or land means the building in which the retail shop is located or (in the case of a retail shop in a retail shopping centre) any building in the retail shopping centre, and includes any areas used in association with any such building.

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Section 3B:

(1) This Act applies to and in respect of an agreement to

lease in the same way as it applies to and in respect of a

lease.

(2) When a lease (the resulting lease) is entered into

pursuant to an agreement to lease:

(a) a lessor’s disclosure statement given for the agreement

to lease is deemed to have been given for the resulting

lease, and

(b) a separate lessor’s disclosure statement is not required

or permitted to be given for the resulting lease.

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Retail markets – new s 6B:

(1) This Act does not apply to a retail shop that is a stall in a market unless the market is a permanent retail market.

(2) A permanent retail market is an assemblage of stalls, styled or described as a market, that are predominantly used for retail businesses and that operate in a building or other permanent structure the sole or dominant use of which (or of the part in which the market operates) is the operation of the market.

Note.

A stall in a permanent retail market is not a retail shop to which this Act applies unless it satisfies the definition of retail shop in section 3.

Regs can modify for purposes of this section, and can prescribe a mandatory code of conduct.

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Section 11 (1) (Lessor’s disclosure statement) and s

11A(1) (lessee’s DS) redrafted and simplified.

New section 11 (2A) entitling lessee terminating for

breach of the section to recover compensation.

Amended section 11(6): parties to the lease can amend

the disclosure statement by written agreement.

Minor amendments to section 12.

New section 12A – lessee not required to pay outgoings

unless amount disclosed in disclosure statement;

limitations where “estimates” used.

25


Current sections 15 and 16 omitted.

New s15 Lessee to be provided with executed copy of

lease

(1) A retail shop lease is taken to include a provision to the

effect that the lessor must provide the lessee with an

executed copy of the lease within 3 months after the lease

is returned to the lessor or the lessor’s lawyer or agent

following its execution by the lessee.

(2) That 3-month period is to be extended for any delay

attributable to the need to obtain any consent from a head

lessor or mortgagee (being delay not due to any failure by

the lessor to make reasonable efforts to obtain consent).

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16 Certain leases must be registered

(1) If a retail shop lease is for a term of more than 3 years

or if the parties to the lease have agreed that the lease is

to be registered, the lessor must lodge the lease for

registration in accordance with the Real Property Act

1900 within 3 months after the lease is returned to the

lessor or the lessor’s lawyer or agent following its execution

by the lessee.

Maximum penalty: 50 penalty units.

(2) The 3-month period within which a lease must be

lodged for registration is to be extended for any delay

attributable to:

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http://www.legislation.nsw.gov.au/#/view/act/1900/25


(a) the need to obtain any consent from a head lessor or

mortgagee (being delay not due to any failure by the lessor

to make reasonable efforts to obtain consent), or

(b) requirements arising under the Real Property Act

1900 that are beyond the control of the lessor.

(3) For the purposes of this section, the term of a retail

shop lease includes any term for which the lease may be

extended or renewed at the option of the lessee.

Where has the former section 16 gone, and why?

Changes in industry practice

“Unnecessary red tape”.

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New section 16BA: Lessor must return a bank guarantee

“within 2 months (the maximum return period) after

the lessee completes performance of the obligations

under the lease for which the bank guarantee is

provided as security.”

Maximum penalty: 50 penalty units.

Compensation payable by the lessor in specified

circumstances.

Sections 19 and 19A omitted (incorporated into section

31).

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Section 20(1) – additional exclusion from “turnover”:

(m) the amount of revenue from online transactions, other than online transactions where the goods or services concerned are delivered or provided from or at the retail shop (or the retail shopping centre of which the shop forms part) or where the transaction takes place while the customer is at the retail shop (whether or not the goods or services concerned are delivered from or at the retail shop).

Section 31 – incorporates former sections 19 and 19A; powers formerly vested in Tribunal now reside with the Registrar. Appointment of specialist retail valuers now in s 32B.

30


Restrictions on demolition power (s35) – demolitionincludes repair, renovation and reconstruction.

New s37(a1) Employment restriction

A retail shop lease must not contain any provision which limits or has the effect of limiting the lessee’s right to employ persons of the lessee’s own choosing, but this section does not prevent the lease containing any one or more of the following provisions:…

(a1) a provision specifying requirements in the nature of police and security checks and clearances for persons employed in the shop or other persons (such as contractors) doing work in the shop, but only if the provision is included in the lease with the approval in writing of the Registrar given in a particular case,

31


New s 39(1) ground: non-compliance with public tender criteria.

Rewritten, plainer ss 41 and 41A.

New s 47 limiting the power of the landlord to compel the tenant to provide information regarding online transactions (except in the limited circumstances set out in s 47(2)),

Tribunal given jurisdiction to deal with rectification claims (s 72AB).

Increased monetary jurisdiction to $750,000 (s 73).

Penalty notices regime (new s 83A).

Amended disclosure statements (Sch 2),

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Schedule 1A Excluded uses

Automatic teller machine

Car parking (not being car parking provided as part of the business of a car park)

Children’s ride machine

Communication towers

Digital display screens

Display of signage (not including the use of premises from which signage is sold)

Internet booth (not being an internet cafe or similar use)

Private post boxes

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Public tables and seating

Public telephone

Renewable energy generation

Renewable energy storage batteries

Self-storage units

Storage of goods for use or sale in a retail shop (not

including storage on premises from which goods are

sold)

Storage lockers

Vending machine

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The 2017 Review Act – Savings

and transitional

Sch 3 Part 7

In general, amendments are retrospective (Sch 3 cl 38)

But some amendments are not – Sch 3 cll 39 to 48.

Note in particular:

Disclosure statement amendments

Execution and registration

Security bonds

Return of bank guarantees

Minimum five year term

Mortgagee consent fees

35

The 2017 Review Act – what’s

missing?

Changes to land tax

recovery

Registration of “side

deals”

Duty of good faith

36

Industry standard forms

It is understood the Law Society

commercial lease is under review to

consider the impact of the amending Act

(among other things).

It is likely the REI (non-registrable) retail

lease will also be reviewed.

Clause 24 of the contract for sale and

purchase of land?

37

Major strata law reform and

leasing practice

Strata Schemes Management Act 2015 and Strata Schemes Development Act 2015 received Royal Assent on 5/11/2015.

The statutes underpinning the familiar strata framework (the Strata Schemes Management Act 1996, Strata Schemes (Freehold Development) Act 1973 and the Strata Schemes (Leasehold Development) Act 1986) have been repealed.

The 2015 Acts could not commence until supporting regulations are published (and industry is prepared for the changes).

Draft regulations and accompanying RISs April 2016.

Management Reg 2016 issued August 2016; Development Reg 2016 issued 4 November 2016.

Commenced 30/11/16 (except building bonds to start 1/7/17).

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Changes in terminology

From definitions in new Management Act (s4):

Executive committee becomes strata committee

Sinking fund becomes capital works fund (established under s 74)

Exclusive use by-law becomes common property rights by-law (with more detail in s 142)

Section 109 certificate becomes strata information certificate (or a s184(1) certificate)

Section 118 notice becomes strata interest notice (or a s 22(1) notice)

Caretaker becomes building manager (with more detail in s 66)

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Structure of the new

Development Act

Broadly adopts the structure of the current freehold development Act.

However, Part 3 of the new Act relating to leases in strata leasehold schemes has effectively been transferred from the current leasehold development legislation.

Most significantly, Part 10 of the new development legislation (‘Strata renewal process for freehold strata schemes’) has no counterpart in the 1973 Act.

Part 10 is novel, contentious and was subject to most debate in Parliament.

Extremely detailed statutory scheme – ss 153 to 190.

Note that Part 10 is not limited to residential strata schemes, nor to strata schemes ‘over a certain age’.

40

Strata renewal – the process for

“2015 Act” strata schemes

1. Strata renewal proposal submitted

2. Strata committee (formerly called executive committee) to consider proposal

3. If further consideration warranted, meeting of owners corporation which can elect a strata renewal committee.

4. Committee generally operates for one year.

5. SRC prepares a strata renewal plan.

6. Plan circulated – opportunity for lot owners in favour to lodge a support notice.

7. Once required level of support reached, further meeting of owners corporation.

8. Then submitted for approval by L and E Court.

41

Strata renewal – the process

for existing strata schemes

One possibility:

1. Strata renewal proposal received

2. Meeting of owners corporation convened to consider whether Part 10 is to apply (and since Part 10 does not yet apply, held at the OC’s leisure?).

3. If meeting decides Part 10 can apply, possible for OC to consider proposal at that general meeting (Sch 8 cl 8(3)).

4. If that in fact occurs, does it eliminate the need for the strata committee to consider proposal (step 2 on earlier slide)?

5. Meeting of owners corporation can elect a strata renewal committee.

6. Committee generally operates for one year.

7. SRC prepares a strata renewal plan.

8. Plan circulated – opportunity for lot owners in favour to lodge a support notice.

9. Once required level of support reached, further meeting of owners corporation.

10. Then submitted for approval by L and E Court.

42

Prescribed content of a strata

renewal proposal

(a) the warning notice set out in subclause (2),

(b) the name and address of the person giving the proposal (the proponent),

(c) details of the financial interests (if any) that the proponent has in any of the lots in the strata scheme,

(d) a general description of the proposal and the purpose of the proposal,

(e) how the proposal will be funded,

43


renewal proposal 2

(f) an estimate of the total cost (including application fees and legal fees) of obtaining an order from the court to give effect to the strata renewal plan,

(g) whether the proponent will provide any monetary contributions (whether initial or continuing) towards the reasonable costs and expenses incurred by the strata renewal committee or owners corporation in relation to the following:

(i) preparing a strata renewal plan,

(ii) obtaining specialist consultant reports,

(iii) obtaining an order from the court to give effect to the plan,

44


renewal proposal 3

(h) if the proponent is to provide any monetary contributions, what (if any) security (such as cash, bond, bank guarantee) will be provided,

(i) the potential (if any) for owners to buy back into the development following the collective sale or redevelopment,

(j) if the proposal is for a collective sale of the strata scheme:

(i) an indicative sale price and an explanation of how that price was determined and the distribution of that sale price on current unit entitlements, and

(ii) the proposed timetable for the collective sale, including a proposed completion date and the proposed date by which owners will be required to vacate premises forming part of the scheme,

45


renewal proposal 4

(k) if the proposal is for the redevelopment of the strata scheme:

(i) details of the proposed terms of settlement that are to be offered to each lot owner, and

(ii) how the redevelopment will be funded by the proponent, and

(iii) details of any planning approvals and other authorisations that would be required before the redevelopment can start and how and when the proponent intends to obtain those approvals and authorisations and whether they will be obtained before an application is to be made to the court for an order to give effect to the strata renewal plan, and

46


renewal proposal 5

(iv) the proposed timetable for the development, including an estimate of the period from the start of the redevelopment to its completion, and

(v) the estimated date on which owners must provide vacant possession to the proponent.

The warning notice to this effect:

IMPORTANT NOTICE TO OWNERS IN STRATA PLAN [insert plan number]

This renewal proposal may have significant legal, financial and taxation consequences for you. It may also impact on the rights of your tenants, mortgagees, covenant chargees or caveators which may in turn have impacts on you. You should ensure that you understand your rights and obligations and how this proposal will affect you.

47

“Impact on the rights of your

tenants…”

Derogation from grant?

Compensation?

Lease covenants just in case a

strata renewal proposal surfaces

during the life of the lease (and any

option periods)?

Any interplay with the Retail Leases

Act?48

Questions or

comments?

Documents

Retail Leases Amendment (Review) Act 2017...2017/11/04 · Retail Leases Amendment (Review) Act 2017 Retail leases reform has been in prospect since April 2008, with several false