Parties to retail leases and to franchise agreements will need to be aware of the Retail Leases Amendment (Review) Act 2017 No 2 (the Act) which will commence on 1 July 2017.
Most Franchising agreements provide for a sub-lease or licence arrangement of retail premises which the franchisee obtains from the franchisor (who is the lessee in most instances) in order to operate the business in the premises. This means that any advantage (or disadvantage) the franchisor obtains through the Act as a lessee may affect the franchisee.
Some of the key changes to leasing of retail premises are:
• New Lessor Disclosure Requirements - requires full disclosure in the lessor’s disclosure statement of any obligation of the lessee to contribute to the lessor’s outgoings and prevents recovery from them of outgoings that are not disclosed.
• Turnover Rent - lessees may find shelter from turnover rent clauses in leases by utilising online transactions. The definition of turnover rent now excludes online sales revenue, except where the goods are delivered from or at the premises (or the Centre) or where the transaction takes place while the customer is at the premises.
• Minimum 5 year term to be repealed - the requirement for a minimum term for retail leases will be removed meaning lessees will no longer have the security provided by legislation of a term of no less than 5 years. Franchisees will need to be aware of this change in particular.
The Act also introduces changes to the rights and obligations of lessors:
• Outgoings - the definition has been extended to include management, operation, maintenance or repair of the retail shop building or land, and other fees charged by a lessor, for services provided by the lessor. Franchisees may need to bear these extra costs.
• Compensation for lessees - lessors will now need to pay the lessee compensation if they terminate the lease within the first six months, on the basis that the lessor didn’t provide a disclosure statement or because the disclosure statement was incomplete or contained information that was materially false or misleading.
Some other general changes which will occur as a result of the Act include:
• Return and registration of lease - The timeframe for the lessor providing a copy of the signed lease to the lessee has been amended from one month to three months.
• Bank guarantee - a lessor will now be required to return any bank guarantee within 2 months after the lessee has performed all obligations secured by the bank guarantee.
• Mortgagee consent - lessors are no longer entitled to recover any expenses involved in obtaining the consent of the mortgagee of the premises leased.
• Assignment of lease – amendments have been introduced to clarify the procedure that must be followed for the assignment of a retail shop lease and for a lessee to be released from liability to the lessor after assignment.
• Increased jurisdiction of Tribunal - the monetary limit on the jurisdiction of NCAT will be increased from $400,000 to $750,000.
If you would like to know more about how these changes will affect you, please contact Matthews Folbigg Lawyers on 02 9635 7966.
Anna Zdrilic, Principal, practices extensively in commercial and retail leasing. Anna can be contacted on 9806 7461 or firstname.lastname@example.org.
DISCLAIMER: This article is provided as a brief summary only and should not be relied upon or used as definitive or complete statement of the relevant law.