Major Changes to Queensland’s Retail Shop Leases Legislation

Key Changes at a Glance

• Scope: the Act will no longer apply to shops over 1,000 square metres, ATM and vending machine sites in common areas, or centres where retail use is 25% or less of the building.
• Disclosure: new or expanded disclosure obligations for landlords, tenants, sublessors, franchisors and assignors.
• Renewals: landlords must give a current disclosure statement when a tenant exercises an option to renew.
• Rent reviews: valuer submission periods of at least 14 days, and new options for major lessees.
• Costs: landlords cannot recover mortgagee consent costs, but can recover lease preparation costs in some cases.
• Compensation: new rules on relocation, demolition and anticipated disturbance.

The Retail Shop Leases Act 1994 (Qld) (the Act) is the primary legislation governing leases of retail premises in Queensland. The Retail Shop Leases Amendment Act 2016 (Qld) was passed by the Queensland Parliament on 10 May 2016 and commenced on 25 November 2016. The changes affect which leases the Act covers, disclosure obligations, rent reviews, costs landlords can recover and compensation payable to tenants.

Which retail leases will the Act no longer apply to?

Under the amendments, the Act will not apply to

• retail 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.

Can landlords and tenants contract out of the Act?

No. Section 19 of the Act (now renumbered as section 16) prevents parties from contracting out of the Act. This now applies not only to leases, but also to other agreements about the lease.

What are the new disclosure requirements?

The amendments expand disclosure obligations for landlords, tenants, sublessors, franchisors and assignors. Most require a disclosure statement at least seven days before the relevant agreement is entered into.

Landlord disclosure before a lease is signed

A tenant can now enter into a lease less than seven days after receiving the landlord’s disclosure statement and draft lease. To do so, the tenant must first give the landlord a signed written notice and a legal advice report. The legal advice report is not required if the tenant leases five or more retail shops in Australia.

Landlord disclosure when a tenant renews or extends a lease

Under the new section 21E, a landlord must give the tenant a current disclosure statement within seven days of receiving the tenant’s notice exercising an option to renew. The tenant can waive this requirement by giving the landlord written notice.
Within 14 days of receiving the disclosure statement, the tenant may withdraw their renewal notice, even if the further term has already started.

Tenant (lessee) disclosure requirements

A tenant (other than a franchisee) must now give the landlord a lessee disclosure statement at least seven days before entering into the lease.

Disclosure requirements for sublessors and franchisors

At least seven days before entering into a sublease, a sublessor must give the sublessee:

• a copy of the landlord’s disclosure statement; and
• a written statement detailing any matters that could affect the information in that disclosure statement.

Similar provisions apply to a tenant who is a franchisor and proposes to license the retail shop to a franchisee operating under the franchisor’s business name or mark.

If the landlord’s original disclosure statement is more than two months old, the sublessor (or franchisor) must ask the landlord to provide an updated statement within 28 days, and the sublessor (or franchisor) is liable for the landlord’s reasonable costs of preparing it.

Disclosure requirements for an assignment of lease

Under amended section 22B, the assignor must give the assignee a disclosure statement and a copy of the lease at least seven days before the earlier of:

• if the assignment relates to the sale of the assignor’s business, the day the assignee enters into the sale contract; or
• the day the landlord is asked to consent to the assignment.

The assignee can waive the seven-day period in writing. When the landlord is asked to consent, the assignor must also give the landlord a copy of the assignor’s disclosure statement.

Under amended section 22C, a prospective assignee can enter into an assignment less than seven days after receiving the landlord’s disclosure statement by giving the landlord a signed written notice.

Under amended section 50A, guarantors under an assigned lease are also released from continuing liability if the assigning tenant complies with its disclosure obligations under the Act.

When is a retail lease “entered into”?

For the disclosure requirements, amended section 11 clarifies that a retail lease (or sublease) can be entered into even if it has not been signed, once the tenant starts paying rent.

How have the rent review provisions changed?

When market rent is determined by a specialist valuer, amended section 28A requires the valuer to allow at least 14 days for landlord and tenant submissions.

Under amended sections 36 and 36A, a retail lease can include the following if the tenant is a major lessee who notifies the landlord that subsections 27(2) to (7) will not apply:

• provisions allowing rent to be reviewed using one of two or more methods of calculating rent; and
• a ratchet rent provision that prevents or limits rent decreasing on a rent review.

What costs can landlords recover from tenants?

Promotion and advertising costs

Under the new section 40A, if a tenant must pay the landlord for promotion and advertising, the landlord must give the tenant a marketing plan (including proposed promotion and advertising expenditure) at least one month before each accounting period starts.

Under amended section 41, the landlord must also give tenants an audited statement of promotion expenditure within three months after the end of the period it relates to.

Mortgagee consent and lease preparation costs

Amended section 48 prevents landlords from recovering the cost of obtaining their mortgagee’s consent from tenants.

However, under the new section 48(3), a landlord can recover reasonable legal or other expenses for preparing a final lease if:

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

What compensation is payable to tenants?

Relocation and demolition

The new section 43AD clarifies that a tenant who must vacate because the landlord relocates or demolishes the premises is only entitled to compensation under section 43(1) if they are not entitled to reasonable compensation under sections 46G and 46K.

Anticipated disturbance in the first year

The new section 44A allows landlords to limit compensation payable for an anticipated disturbance in the first year of the lease term. To do so, before the lease is entered into, the landlord must give the tenant written notice that includes:

• a specific description of the nature of the anticipated disturbance on the tenant;
• a statement assessing the likelihood of the disturbance occurring, including the basis for that assessment; and
• a statement of the timing, duration and effect of the disturbance, so far as they can be predicted.

Other changes to the Act

• Relocation (new section 46D(4)): a landlord relocating a tenant must provide a new shop in the same shopping centre.
• Demolition (amended section 46J(2)): when a landlord notifies the tenant of demolition, the tenant must give at least one month’s notice if they wish to end the lease early.
• Refurbishment and refits (new section 50B): a lease provision requiring the tenant to refurbish or refit the premises is void unless the lease includes general details of the nature, extent and timing of the work.

Need advice on a retail shop lease in Queensland?

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