What Government landlords and tenants need to know about the Retail Leases Amendment Act 2019 from 1 October

Summary of key changes

The Retail Leases Amendment Act 2019:

1. clarifies that landlords and tenants can agree in the lease that the tenant will perform all essential safety measure obligations and bear the cost of doing so
2. extends the time period for giving a copy of the proposed lease and disclosure statement to the tenant before entering into the lease from 7 days to 14 days
3. expands the information that must be included in an option to renew notice given by the landlord to the tenant, and changes the time period applicable for giving the notice
4. introduces a new early rent review mechanism for the tenant as part of a renewal of lease
5. introduces a new right for the tenant to cool off regarding their decision to renew the lease in certain circumstances

So, what does this mean for landlords and tenants?

Essential Safety Measures

Essential Safety Measures (ESMs) are the compulsory fire, safety and health items installed within a building to ensure adequate levels of fire safety and protection over the life of the building. ESM obligations are imposed on the landlord as the 'owner of a building' under building legislation.

For retail leases, the amendments:

1. confirm that the parties can contractually agree that the tenant will perform all the landlord's ESM obligations
2. confirm that the landlord remains the party responsible for ESM compliance under building legislation but can recover any non-compliance-related loss from the tenant
3. allow the landlord to pass on part or all of the compliance costs to the tenant

These amended provisions:

• only apply to retail premises leases. The position for other commercial leases remains unclear
• are retrospective, and validate existing lease terms

Landlords - ensure the terms of your retail leases are clear as to whether ESM performance obligations and the associated costs will be passed onto the tenant or remain with the landlord. Either way, the landlord will still bear ultimate responsibility under the building legislation, so the landlord needs to consider whether the tenant is best placed to perform everything including the annual ESM audit, or just reimburse the landlord for its compliance work.

Provision of disclosure statement and draft lease

Before entering into a retail lease, the landlord must give the tenant a copy of the proposed lease and disclosure statement. A disclosure statement outlines important information and details about the lease so the tenant can understand the key information, such as the term of the lease, rent and outgoings, and any anticipated works.

Under the new provisions:

• the landlord must give the tenant the proposed lease and disclosure statement at least 14 days before entering into the retail lease, rather than the current 7 day period. If the landlord gives either of these documents less than 14 days before the lease is entered into, the commencement date is pushed out until 14 days after their provision
• if the proposed lease contains any changes, when compared to a previous copy of the lease given to the tenant, the landlord must notify the tenant of these alterations. If this is not done, the landlord is liable to pay a penalty of $8,261 for an individual, and $41,305 for a body corporate

Landlords - consider revising your administrative processes in light of these changed requirements, and diarise important dates. If you are sending revised leases to the tenant or their representative, always provide details of all changes made to the document since the previous version. Your solicitor can assist with this. If the transaction is time-sensitive, provide documents as soon as possible, to ensure that you are not caught out by the 14-day minimum decision period.

Tenants - know your rights when negotiating and resist any inappropriate pressure from a landlord. Your solicitor can assist with this.

Renewing a lease - landlord's notice requirements

Under the new provisions, at least 3 months before the last date that an option to renew may be exercised, the landlord must give the tenant a written notice that sets out all of the following information:

• the last day the tenant can exercise the option to renew
• availability of the cooling-off period
• the rent payable for the first 12 months of any renewed term
• availability of an early rent review
• any changes needed to the most recent disclosure statement provided

Currently, the Act only requires notice of the first dot point above, and that notice must be given between 12 months and 6 months before the last date that an option to renew may be exercised.

If the landlord fails to give all this information, or does so outside the applicable time period, the lease is taken to provide that the last day for exercising the option is 3 months after the landlord notifies the tenant as required.

Landlords - update your standard notices to tenants about renewals to ensure they capture the above information. Diarise the renewal and notice dates to ensure you do not miss deadlines.

Tenants - know your rights when considering renewing a lease. Review the landlord's renewal notice carefully to ensure it captures all the above information and negotiate on points you do not agree with before exercising your option to renew.

Renewing a lease - new early rent review mechanism

The amendments include a new mechanism where the tenant may request an early rent review if the following conditions are met:

• The tenant gives written notice to the landlord within 28 days after receiving the landlord's compliant renewal notice, requesting an early rent review.
• The lease provides for a market rent review.
• The tenant has advised the landlord that they are exercising their option to renew before the last day to renew has elapsed.

If a specialist retail valuer is appointed to determine the current market rent and the tenant is not notified of their rent determination at least 14 days before the last day to exercise the option to renew the lease, the deadline to exercise the option to renew is extended until 14 days after the tenant is notified. If that extended date falls after the end of the lease, the lease term is also extended to that date. Where the rent determination is less than the rent payable under the lease during the extended term, a rent reconciliation occurs for this period.

Renewing a lease - new cooling-off rights

Where a tenant has exercised a right to renew a lease, the tenant will also have the right to advise the landlord in writing that they no longer wish to proceed. This right may be exercised during a 14 day period after exercising their option. If the tenant exercises this cooling-off right, the option to renew lapses and the lease term is extended by 14 days.

The tenant cannot exercise this right if they have requested an early rent review.

Returning security deposits at the end of the lease

If the tenant performs all their obligations under the lease, the landlord must return the security deposit to the tenant within 30 days after the lease ends Currently the Act only requires this to be done 'as soon as practicable'.

*NOTE: The amendments relating to essential safety measures commenced on 23 September 2020, with retrospective effect as outlined above. All other amendments commence on 1 October 2020.

Contact our team

The VGSO Property Team provides a full-service property law and Crown land practice to the Victorian public sector. We can assist with drafting and negotiating all leases and licences, and provide advice on application of the Retail Leases Act 2003 to your transaction.

Margaret Marotti
Managing Principal Solicitor, Commercial, Property and Technology
Mobile: 0408 311 246
Email: margaret.marotti@vgso.vic.gov.au

Anthony Leggiero
Lead Counsel, Commercial, Property and Technology
Mobile: 0457 417 813
Email: anthony.leggiero@vgso.vic.gov.au

Lauren Walley
Principal Solicitor, Commercial, Property and Technology
Mobile: 0408 326 771
Email: lauren.walley@vgso.vic.gov.au

The information is of a general nature only and does not convey or contain legal advice. If you would like to obtain legal advice in relation to any matter discussed on this page, please contact us.