Important Changes to the Retail Leases Act 2003 (Vic)

After a long wait in the Parliament, the Retail Leases Amendment Act 2020 (Vic) (RLAA) commenced on 23 September 2020 and makes a range of important changes to the Retail Leases Act 2003 (Vic) (RLA).

Those changes have the effect of creating certainty in relation to long standing issues regarding essential safety measures, and also imposing additional obligations upon landlords.

Essential safety measures changes

The RLAA deals with the long-standing uncertainty and disquiet regarding costs associated with maintenance and repair of essential safety measures (ESMs).

From 23 September 2020, landlords can:

1 recover outgoings related to repair and maintenance of essential safety measures (ESMs); and

2 require the tenant to maintain and repair ESMs.

A 2015 VCAT Advisory Opinion held that such arrangements breached the provisions of the Building Act 1993 (Vic). The RLAA amendment expressly allows parties to a lease agree that the tenant will be responsible for carrying out maintenance and repair of ESMs and the installation of ESMs relating to the tenant’s fitout.

In addition, the changes permit the landlord recover the costs of maintenance and repair of essential safety measures from tenants through outgoings.

Landlords remain primarily responsible for ensuring compliance with the Building Act 1993 (Vic) and so obligations of maintenance and repair should only be passed on to tenants would seem to have sufficient competence to manage the relevant repairs and maintenance.

These arrangements only apply where there are provisions in the lease which allow recovery or the passing on of the relevant obligations. They are applicable to all leases, including those entered into before the commencement of the RLAA.

There remains uncertainty as to whether landlords who implemented arrangements now permitted by the RLA could be liable for claims from tenants seeking to recover the associated outgoings and costs in respect of the period prior to the commencement of the RLAA.

Disclosure Statements

A landlord is now required to provide an RLA disclosure statement and a copy of the proposed lease (including particulars of the tenant, the rent and the term) to a tenant 14 days (previously 7 days) prior to the commencement of the lease.

Where the required 14-day gap between provision of the proposed lease and disclosure statement and commencement of the lease does not occur, the lease is treated as not having commenced until the expiry of 14 days. This means the landlord would not be able to hold the tenant liable for provisions under the lease (including the payment of rent) until the expiry of 14 days and may cause some uncertainty about expiry and other lease dates. Any variation of the commencement date identified in the lease as a result of the operation of the RLA should be carefully recorded.

A landlord must notify a tenant of any changes made to the previous copy of the lease given to the tenant. This arrangement ensures that changes are brought to the attention of the tenant and should be easily facilitated through the provision of revisions of documents showing “marked up” changes.

Landlords failing to comply with this provision are liable for a penalty of 50 penalty units for individuals ($8,261) or 250 penalty units for corporates ($41,305) – hefty penalties.

Further, upon renewal, landlords must give tenants notice of any changes to the previous disclosure statement given to the tenant.

This means ensuring a landlord holds copies of previous disclosure statements has increased importance and should be kept in mind by purchasers of leased properties.

This provision applies to all leases in operation prior to the commencement of the section (on 1 October 2020 or such earlier day to be proclaimed), unless there are less than 21 days left in the term.

Provision of information before expiry of option for renewal

Landlord are required, at least 3 months prior to the last date upon which a tenant may exercise their option, to give the tenant a notice which sets out:

1 the date by which the option must be exercised;

2 the rent payable for the first 12 months of any renewed term;

3 the availability of an early rent review under section 28A (see below);

4 the availability of a cooling off period under section 28B; and

5 changes to the most recent disclosure statement given to the tenant.

This can be contrasted to the previous section which simply required notice be given between 12 and 6 months prior to the expiry of the option right.

Failure by a landlord to provide the required notice means the date for the exercise of the option is extended until 3 months after provision of the notice, and the term of the lease will be extended (if required) as a consequence, although the tenant may terminate the lease with effect upon any date after which the term of the lease would otherwise have ended. Associated complicated provisions have the effect of ensuring that the tenant pays the lesser of the rent then payable, the amount offered or the rent determined (as the case requires) during any such extension of the term.

This provision applies to all leases in operation prior to the commencement of the section (on 1 October 2020 or such earlier day to be proclaimed), unless there are less than 3 months left in the term of the relevant lease.

Tenant can require an early rent review

Where the rent for a renewed term is to be the current market rent, the tenant may request an early review by giving the landlord notice within 28 days of the receipt of the landlord’s notice of the option expiry date.

The last date the tenant may exercise its option right is extended until 14 days after the rent is agreed or determined. If this date is after the end of the term, the lease is extended as required on the same terms and conditions unless otherwise agreed.

Parties bear their own costs of the early rent determination.

Cooling off period where no early rent review

Where a tenant exercises its option, but has not requested an early rent review, the tenant can, within 14 days of after exercising its option, give notice withdrawing the exercise of its option.

In that case, the term of the lease is extended by 14 days, and the tenant is not able to later exercise its option.

Security deposits

Where a tenant has performed all its obligations under the lease, the landlord must return any security deposit within 30 days after the lease ends. We consider this includes any bank guarantee.

This provision applies to all leases in operation prior to the commencement of the section (on 1 October 2020 or such earlier day to be proclaimed).