Jun

26

Retail Shop Leasing

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REVIEW OF SOME SECTIONS OF THE RETAIL SHOP LEASES ACT WHICH APPLY TO SMALL TO MEDIUM BUSINESS

 

The purpose of the Retail Shop Leases Act (“the Act”) is to promote efficiency and equality in the conduct of certain retail businesses in Queensland.

WHAT IS A RETAIL SHOP LEASE ACT

 

The Act applies to all retail shop leases of premises in Queensland. The term “Retail Shop Lease” is defined in the schedule to the Act as meaning the lease of a retail shop.

The term “Retail Shop” is defined as meaning premises that are:

a)       situated in a retail shopping centre; or

b)       used wholly or predominately for the carry on of one or more retail businesses.

The underlined terms above are also defined in the Act. The term retail business is a business prescribed by regulation. The term retail shopping centre is defined as a cluster of premises having all of the following attributes:

a)       five or more businesses are used wholly or predominately for carrying on retail businesses;

b)       all of the premises –

                                                               i.      are owned by the 1 person;

                                                             ii.      have the 1 lessor or head lessor or, if the premises were leased, would have the 1 lessor or head lessor; or

                                                            iii.      comprise lots within a single community titles scheme;

c)       all the premises are located in –

                                                               i.      one building; or

                                                             ii.      2 or more buildings if –

  1. the buildings are adjoined; or

  1. if the premises are owned by the 1 person – the buildings are separated by common areas or other areas owned by the owner or a road; or

  1. if the premises are not owned by the 1 person – the buildings are separated by common areas or a road;

d)       the cluster of premises is promoted, or generally regarded, as constituting a shopping centre, shopping mall, shopping court or shopping arcade.

As a result of the definition contained in the Act referred to above, a lease which would ordinarily be commercial in nature can be governed by the Act if it is in a building generally regarded as a shopping centre and satisfies the definitions contained in the Act.

EXCLUDED RETAIL SHOPS

 

As this paper is aimed at small to medium enterprises (“SME’s”) I do not propose to provide an exhausted list of excluded shops, however the following may be relevant to SME’S:

a)       in a flea market, trade show, carnival, festival, theme or amusement park;

b)       a lease with a term, including any extension periods, of lease than 6 months;

c)       used for the carrying on of a business of a service station, if the Petroleum Retail Marketing Franchise Act 1980 (cwlth) applies;

d)       subject to a periodic tenancy or tenancy at will, in which case the disclosure obligations contained in part 5 do not apply.

PRELIMINARY DISCLOSURE

 

The Act requires mandatory disclosure to a prospective Lessee. At least 7 days before a prospective lessee of a retail shop enters into a retail shop lease, the lessor must give the lessee a disclosure statement and a draft lease. A person is taken to enter into a retail shop lease on the earlier of:

a)       the date the lease becomes binding on the lessor and the lessee; and

b)       the date the lessee enters into possession of the premises.

For a lessor the consequences of not complying with the disclosure requirements of the Act can be costly. The consequences are:

  1. the lessee has the right to terminate the lease within 6 months;

  1. the lessor can be liable to pay reasonable compensation for loss or damage suffered by the lessee because of the non-compliance or providing a defective statement. A defective statement is a statement which is incomplete or contains information that is false or misleading in an arterial particular.

ASSIGNMENT OF LEASE

 

Parties involved in an assignment of a lease have similar disclosure obligations as referred to above. Upon an assignment:

a)       the assignor (current lessee) must give to the assignee (the new lessee) a disclosure statement at lease 7 days before asking the lessor to consent to the assignment.

b)       the assignee must give a disclosure statement to the assignor before the lessor’s consent is requested.

c)       the lessor must give a disclosure statement and a copy of the lease to the assignee at least 7 days before the assignment occurs.

d)       the assignee must give a disclosure statement to the lessor before the assignment occurs.

There is no provision in the Act which enables an assignee to terminate the lease or claim compensation from the lessor for failing to provide the disclosures as referred to above.

The Act now provides that upon the assignment of a retail shop lease the assignor is released from any liability under the lease to which the assignor would otherwise be subject if there is any default from the assignee. This applies despite any clause or provision in the lease or the deed of assignment. However this release only applies if all parties, that is the lessor, the assignor and the assignee, have complied with the disclosure obligations and those statements are not a deflective statement.

The lessor when considering consenting to an assignment must:

a)       provide their response within one month after receiving the request.

b)       not seek to impose or withdraw an obligation on the assignee which is not an obligation contained in the lease.

c)       impose a condition for consenting to the assignment which is unreasonable.

LESSEE’S PAYMENT OBLIGATIONS

 

The retail shop lease must not contain a provision requiring the lessee to make any payment other than the following:

a)       rent;

b)       outgoing;

c)       damages for a breach of the lease;

d)       an indemnity given for the loss or damage suffered by the Lessor as a result of the actions or omissions of the lessee;

e)       interest on the arrears of rent or outgoings.;

f)        the lessors reasonable legal or other expenses incurred in responding to a request by the lessee to vary the lease or consent to an assignment sub-lease or license of the Lessees interest.

The Act also allows the lessor to recover other costs such as GST and payments for promotion of the shopping centre.

OPTIONS TO RENEW

 

The Act requires a Lessor to remind the lessee of the option to renew the lease despite any other clause contained in the lease. If the lessor fails to remind the lessee they are liable for a maximum penalty of $3,000.00. The notice must be given at lease two months but not longer than 6 months before the option date.

I highlight the words “option date.” The option date is not the date the term expires but rather the date stated in the lease as the date by which the lessee must give notice if they intend to exercise the option to renew.

If there is no option in the lease then the landlord must give the lessee written notice that:

a)       the lessor will offer the lessee a renewal or extension of the lease on terms, including terms about rent, stated in the notice; or

b)       the lessor does not intend to offer the lease of renewal or extension of the lease.

The time for which the Lessor must provide notice is:

a)       if the lease is less than one year, the notice is at least 3 months but not longer than 6 months before the lease ends.

b)       for a lease of more than 1 year and is at least 6 months but not longer than 1 year before the lease ends.

Failure to give this notice, automatically extends the lease until 6 months after the lessor gives the notice or to such date that the lessee terminates the lease by giving at least one months written notice to the Lessor.

RENT REVIEWS

 

The lease must state the timing of the rent reviews and the basis on which each review is to be made. The rent must not be renewed more than once in each year of the lease except in the first year. Further each rent review must be made using only one basis of calculation.

The basis must consist of one of the following:

a)       the current market rent;

b)       an independently published index of prices, costs or wages;

c)       a fixed percentage;

d)       a fixed actual amount;

e)       a base rent plus an amount equal to a percentage of the turnover of the lessee’s business;

f)        another basis prescribed by regulation;

g)       a single basis formed by a combination of to or more basis mentioned in (b) to (f) above.

If the lease breaches these provisions of the Act the effects can be dire for the lessor. If the lease was entered into before 1 July 2000 then the rent review is invalid and no rent review of any kind can be imposed.

If the lease was entered into after 1 July 2000 then the following will apply:

a)       if the lease provides for a review more than once in any year other then the first year then the rent is the same as the rent payable before the timing of the review.

b)       if the lease provides for more than once basis of a rent review than the rent is to be determined on only one of the basis and that basis is to be chosen by the lessee.

c)       if the lease reserves a right for the lessor to apply more than one method of calculating the rent and choosing the greater of those methods then the rent review basis is chosen by the lessee.

OUTGOINGS

Outgoings include the lessors reasonable expenses directly attributable to the operation maintenance or repair of the centre or building, charges, levies, premiums, rates or taxes. The Act lists a number exclusions including land tax, expenditure of a capital nature, and contributions to a sinking fund.

For outgoings to be reasonable expenses directly attributable to the operation of the centre or building then:

a)       they must fall within the definition contained in the Act;

b)       the reasonableness of the expenses must be established by reference to competitive markets for services the costs of which is claimed as an outgoing;

c)       the lessor must be prepared to demonstrate that expenses are reasonably incurred and directly attributable to the operation, maintenance and repair of the premises.

The lessor must give the lessee an annual estimate of outgoings upon the lessee entering into the lease and then at lease one month before the start of each accounting period.

The lessor must give the lessee an audited annual statement in the approved form of the outgoings within 3 months after the end of the period to which the outgoings relate. These outgoings must be itemised and each one must not exceed 5% of the total outgoings.

CONCLUSION

It is important that all parties obtain legal advice to ensure that they, and the other parties, comply with the requirements of the retail shop leases act. There are serious consequences for the parties, in particular a lessor, in failing to comply with the Act.

 Ferguson Cannon have expert lawyers who specialize in retail leasing matters. If you have any queries please do not hesitate to contact Tony Pattinson  @ Ferguson Cannon.

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Category: Business & Corporate Services, Fact Finders, General, Land Law, Leasing

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