6 important changes for landlords and tenants with commercial and retail leases
The Retail Leases Amendment Act 2020 (Vic) (‘The Act’) recently came into effect in Victoria, implementing various important changes that impact both landlords and tenants of retail and commercial leases. Accordingly, leasing processes and documentation must be updated immediately to ensure compliance with the new laws. The 6 key changes are summarised below:
1.Cooling off period
Where a tenant exercises an option to renew a lease, a 14-day cooling off period now applies. During this period, tenants now may give the landlord written notice that they no longer wish to renew the lease.
2. Early rent review
If a lease provides for a market review of rent on commencement of a further term, the tenant may now request an early rent review. In order to trigger an early rent review, the tenant must give the landlord a notice within 28 days of receiving the landlord’s Renewal Notice (see point 4 below). This is designed to ensure that tenants are aware of the rent they will be paying prior to committing and exercising an option to renew the lease. If a retail valuer is appointed to determine the current market rent but the tenant is not notified of the rent determination at least 14 days before the last date that the option to renew the lease may be exercised, that date is extended to 14 days after the date on which the tenant is notified. This automatic extension provides significant incentive for landlords to provide a renewal notice as early as possible and will increase the importance of selecting an appropriate valuer who can provide the determination within the time required. The cost of the valuation must be shared equally between the landlord and tenant.
3. Disclosure statements
The ambiguous and loosely controlled regulations regarding disclosure statements have been tightened with the introduction of the Act. Under the new rules, there is a requirement for landlords to provide tenants with a disclosure statement and a copy of the proposed lease at least 14 days (previously 7 days) before entering into a lease. In the event that these documents are not provided at least 14 days prior to the beginning of the lease, the commencement date of lease will be delayed to 14 days after the tenant has received the documents. Furthermore, where a landlord fails to provide the tenant with a disclosure statement and a copy of the proposed lease at least 14 days before entering into a lease, the tenant may terminate the lease within 28 days after the later of the date on which those items have been provided and the lease is entered into.
4. Obligations on renewal
Landlords are now required to provide substantial additional information to a tenant prior to the tenant exercising an option for a further term. This information must be provided at least three months before the last date on which the tenant is entitled to exercise the option to renew. The following information must be provided (by way of written notice) to tenants:
- the last date by which the tenant must exercise its option to renew;
- the rent payable for the first 12 months of the further term;
- the availability of an early rent review;
- the availability of a cooling off period; and
- any changes to the most recent disclosure statement provided to the tenant, excluding rent-related changes (Renewal Notice).
If a landlord fails to provide the Renewal Notice in the time required, the date by which the option to renew must be exercised is extended to the date three months (previously six months) after the tenant receives the required notice.
5. New leases essential safety measures
In a reversal of the 2015 VCAT advisory opinion, the Act amends both the Building Act and the Retail Leases Act to clarify that, provided the parties agree as such in the lease:
- landlords can recover from tenants:
- ‘the cost of repairs or maintenance work in respect of an essential safety measure’; and
- ‘in respect of an essential safety measure…the cost of carrying out an installation relating to fit out of the retail premises’; and
- tenants can be required to carry out ‘repairs or maintenance work in respect of an essential safety measure on behalf of the landlord’. Landlords should note that the carrying out of repairs or maintenance work by a tenant does not affect the obligations of the landlord as a building owner under the Building Act (including regulations). Accordingly, even with an appropriately drafted lease provision passing the repair and maintenance obligations to a tenant, landlords must regularly inspect the premises to ensure compliance with their statutory obligations. You can read more about essential safety measures, including a list of what is included, on the Victoria Building Authority website.
6. Security deposits
There is now a 30 day time limit for landlords to return security deposits, replacing the previous requirement of ‘as soon as practicable after the lease ends’. The definition of a ‘deposit’ is interpreted to be broad, with the amendment including bank guarantees and bonds.
7. Get legal advice
As always, landlords and tenants should obtain expert legal advice on their rights and obligations under the ever-changing legislation. Seeking advice early, and before you finalise any agreement in writing, will certainly protect your business. For assistance in relation to the RLA, please get in touch with us.
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