On 22 September 2020, The Retail Leases Amendment Act 2019 (Vic) (“Amendment Act”) received Royal Assent.
The Amendment Act introduces amendments to the Retail Leases Act 2003 (Vic) and the Building Act 1993 (Vic) (“Building Act”) and, as a result, there have been significant changes to the obligations of landlords of retail premises leases in Victoria.
As a landlord under a retail premises lease In Victoria, you should be aware of the following changes to ensure that you comply with your responsibilities under the new laws as they may have an impact on the way in which your lease is governed.
Recovering costs of essential safety measures from the tenant
A landlord can now, provided it is agreed by the parties under the lease, recover the cost (or part of the cost) of carrying out, in respect of an essential safety measure:
- repairs or maintenance work; and
- an installation relating to the fit out of the retail premises.
The recovery of such compliance costs by a landlord was previously not permitted pursuant to the VCAT Advisory Opinion (2015) (even when the parties had agreed to such arrangements under the lease), so this is a welcoming change to landlords.
The Amendment Act also states that a tenant may agree with the landlord to carry out or arrange for repairs or maintenance on essential safety measures on behalf of the landlord. Such arrangements will not, however:
- affect any obligation of the landlord, as an owner of the building, to comply with any requirements under the Building Act or its related regulations; and
- limit any obligation of a tenant under a retail lease to contribute to any outgoings for repairs and maintenance work in relation to an essential safety measure.
Disclosures by the landlord
Pursuant to the Amendment Act, a landlord now must:
- when providing the tenant with a Disclosure Statement on renewal of a lease:
- set out any changes to the previous Disclosure Statement given to the tenant in respect of the lease; and
- include information that is current from a specified date that is within 3 months before the disclosure statement is given; and
- where a lease is not in accordance with the agreement for lease, provide a further Disclosure Statement to the tenant.
Return of security deposits
Subject to the tenant satisfying all its obligations under the lease, a landlord must now return security deposit within 30 days (previously ‘as soon as practicable’) after the end of a lease.
At least 3 months before the last date that an option to renew the lease may be exercised, the landlord must now notify the tenant in writing of:
- the last date by which the option to renew the lease may be exercised by the tenant;
- the rent payable for the first 12 months for the further term under any renewal of the lease;
- the availability of an early rent review (see further details below);
- the availability of a cooling off period (see further details below); and
- any changes to the most recent disclosure statement provided to the tenant, other than any changes in relation to rent.
If the landlord does not provide the tenant with the above information by way of written notice by the requisite deadline, the date by which the option to renew must be exercised by the tenant is extended to the date three months (previously six months) after the tenant receives the information, during which time the lease continues on the same terms.
Early rent reviews
If a lease provides for a market rent review on the commencement of a further term, a tenant may request an early market rent review by giving the landlord written notice of the request within 28 days after the landlord has provided the tenant with the written notice referred to above.
If the parties appoint an expert valuer to determine the market rent and the valuer’s determination is not provided before the last date on which the tenant can exercise the option, that date for exercising the option is extended to a further 14 day period after the date on which the tenant is notified of the valuer’s determination.
Cooling off period
A 14-day cooling off period now applies in circumstances where the tenant has exercised an option to renew the lease and has not requested an early market rent review. During the cooling off period, the tenant may provide written notice to the landlord that it no longer wishes to renew the lease. After providing such notice:
- the term of the lease will be extended by 14 days;
- the lease will not be renewed; and
- the tenant will not be able to exercise the option to renew the lease for the further term.
What should landlords do now?
The changes in relation to essential safety measures have come into effect on 22 September 2020 with the remainder of the amendments coming into force on 1 October 2020.
If you have any concerns about the impact of these changes on your obligations (or the terms of your lease generally), it is critical that you:
- ensure that any terms in relation to the costs of repairing and maintaining essential safety measures in your existing standard leases and any renewed leases are comprehensively reviewed and updated to allow you to recover these costs;
- regularly inspect the premises to ensure compliance with your statutory obligations under the Building Act and its associated regulations;
- update your procedures for the early issuing of Disclosure Statements, proposed new leases and any renewal notices relating to further terms;
- adopt a common practice of using mark ups and document compare equivalent tools when making changes to a lease or a renewal of lease;
- select an appropriate valuer who can provide a determination of the market rent within the timeframes required;
- proactively engage with your tenant during the 14 day cooling off period as this period may create a degree of uncertainty with any renewal of the lease; and
- inform key operating stakeholders,. Including the managing agent of your property, of the new deadlines referred to above to ensure compliance.
If you would like to speak to one of our solicitors in relation to the recent amendments contained in the Amendment Act or any other matter, please contact either Kristy Muhlhan, Principal, George Hanger, Associate, Stewart Davis, Lawyer, or Steve O’Dor, Special Counsel, on email@example.com, firstname.lastname@example.org, email@example.com, firstname.lastname@example.org respectively, or by contacting our office on (03) 9822 8588.