Major Changes to Queensland’s Retail Shop Leases Legislation

retail-shop-leases

The Retail Shop Leases Act 1994 (Qld) (‘Act’) is the primary piece of legislation that governs leases of retail premises in Queensland. Proposed changes to the Act have recently been passed by the Queensland Parliament to take effect later this year. The main changes to the Act are summarised below.

Changes to application of Act

The Act will not apply to:

  • retails shops with a floor area greater than 1,000 square metres;
  • leases of common areas in a retail shopping centre for ATMs and vending machines; and
  • leases of premises in a retail shopping centre if 25% or less of the total area of the building (or level if a multi-level building) is used by retail businesses.

Section 19 of the Act (now renumbered as section 16) not only prevents parties from contracting out of the Act in leases but also in other agreements regarding the lease.

Changes to disclosure requirements

Landlord’s disclosure requirements

A tenant is now able to enter into a lease less than seven days after receiving a disclosure statement and draft lease from the landlord provided the tenant gives the landlord a signed written notice and a legal advice report (unless the tenant leases five or more retail shops in Australia) beforehand.

The Act has also been amended to give landlords further disclosure obligations when tenants renew or extend a lease. Under the new section 21E of the Act, a landlord must give a tenant a current disclosure statement within seven days of the landlord receiving the tenant’s notice exercising the option to renew the lease unless the tenant waives this requirement by giving a written notice to the landlord. Within 14 days of receiving the disclosure statement, the tenant may withdraw their renewal notice even if the further term has already commenced.

Tenant’s disclosure requirements

Similar to the landlord’s disclosure period, a tenant (other than a franchisee) must now provide a lessee disclosure statement to the landlord at least seven days before entering into the lease.

Disclosure requirements for sublessors and franchisors

Specific provisions have also been included in the Act to apply to subleases of a retail shop. In particular, at least seven days before entering into a sublease, a sublessor must give their sublessee a copy of the landlord’s disclosure statement and a written statement detailing any matters that could affect the information in the disclosure statement.

Similar provisions have been included in the Act to apply to tenants of a retail shop if they are a franchisor who propose to licence the retail shop to a franchisee who will carry on a business under the franchisor’s business name or mark.

If the landlord’s disclosure statement provided when the sublessor (or franchisor) originally entered into the lease is older than two months, then the sublessor (or franchisor) must request the landlord provide an updated disclosure statement within 28 days and will be liable for the landlord’s reasonable expenses for preparing the new disclosure statement.

Disclosure requirements for an assignment of lease

Section 22B of the Act has been amended so that the assignor of a retail shop lease will now have to provide the assignee with a disclosure statement and copy of the lease at least seven days before the earlier of the following (unless the assignee waives the requirement for the seven day period in writing):

  • If the assignment is related to the sale of the assignor’s business to the assignee, the day on which the assignee enters into the contract; or
  • The day the landlord is asked to consent to the assignment.

When the landlord is asked to consent to the assignment, the assignor must also give the landlord a copy of the assignor’s disclosure statement.

Section 22C of the Act has been amended so a prospective assignee can enter into an assignment of a lease less than seven days from the landlord providing them with a disclosure statement by giving the landlord a signed written notice.

Section 50A of the Act has been amended so that guarantors under an assigned lease are also released from continuing liability if the assigning tenants comply with their disclosure provisions under the the Act.

When a lease is entered into

For the purpose of these disclosure requirements, it is important to note that section 11 of the Act has been amended to clarify that a retail lease (or sublease) can be entered into even if a lease has not been signed by the parties if the tenant starts paying rent.

Changes to rent review provisions

When the market rent is to be determined by a specialist valuer, the due date for submissions by landlords and tenants determined by a valuer must not be less than 14 days under the amended section 28A of the Act.

Sections 36 and 36A of the Act have been amended so that a retail lease can contain the following provisions if the tenant is a major lessee who gives notice to the landlord that subsections 27(2) to (7) of the Act will not apply:

  • Provisions that allow the rent to be reviewed using one of two or more methods of calculating rent; and
  • A ratchet rent provision that prevents or limits the rent decreasing under a rent review.

Changes to costs recoverable by landlords

Section 40A has been inserted into the Act, which obligates landlords to provide tenants with a marketing plan (including proposed expenditure on promotion and advertising) at least one month before the start of each accounting period if the tenant is required to pay amounts to the landlord for promotion and advertising. Similarly, section 41 of the Act has been amended to obligate landlords to provide tenants with an audited statement of promotion expenditure within three months from the end of the period to which the statement would relate.

Section 48 of the Act has been amended to prevent landlords from recovering from tenants their costs associated with obtaining the consent of its mortgagee. However, section 48(3) has been inserted into the Act, which allows landlords to recover from tenants their reasonable legal or other expenses incurred for preparation of a final lease if the:

  • parties agree to the terms of the proposed lease;
  • tenant gives the landlord a written notice to prepare a final lease, which is prepared;
  • tenant does not sign the final lease; and
  • landlord gives the tenant a copy of their invoice for the claimed expenses.

Changes to compensation payable to tenants

Section 43AD has been inserted into the Act, which clarifies that a tenant who is caused to vacate the leased shop by a landlord because of a relocation or demolition of the premises will only be entitled to compensation under section 43(1) of the Act if they are not entitled to reasonable compensation under sections 46G and 46K of the Act.

Section 44A has also been inserted into the Act, which allows landlords to limit the amount of compensation payable to a tenant for an anticipated disturbance occurring within the first year of the lease term if the landlord gives the tenant a written notice before the lease is entered into that includes a:

  • specific description of the nature of the anticipated disturbance on the tenant;
  • statement assessing the likelihood of the anticipated disturbance occurring, including an indication of the basis on which the assessment was reached; and
  • statement of the timing, duration and effect of the anticipated disturbance, so far as they can be predicted.

Minor changes to Act

In addition to the above major changes to the Act, the following minor changes are also worth noting:

  • Section 46D(4) has been inserted into the Act to obligate landlords to provide tenants with a new shop in the same shopping centre if relocating the premises;
  • Section 46J(2) of the Act has been amended so that, when a landlord notifies their tenant that they will be demolishing the premises, the tenant must give at least one month’s notice if they wish to terminate the lease early; and
  • Section 50B has been inserted into the Act, which makes void any provision of a retail shop lease that requires a tenant to refurbish or refit the premises unless the lease contains general details of the nature, extent and timing of the requirements.

If you would like further advice about retail leases or other matters relating to property in Queensland, please contact us and one of our experienced commercial lawyers will be able to assist.

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