Your Business Needs to Know about Changes to Retail Shop Leases

Here’s the thing about change: it is seldom easy and no one really likes it. But in truth, it’s not always bad. In fact, it can sometimes make life better. It’s just a matter of our willingness and ability to adapt. With that being stated, here’s what you should know about changes to the law regulating retail leases in Queensland.

The modifications to The Retail Shop Leases Act 1994 (Qld) have been implemented for two reasons. First, they are supposed to bolster existing consumer protective provisions. Secondly, they are designed to minimize any past confusion and simplify certain dealings between landlords and tenants.

Basic points of clarification

To begin with, the Act as amended does not apply to the following:

retail shops with a floor area that exceeds 1,000 square metres;
leases of common areas in retail shopping centres for the placement of automated teller machines (ATMs), vending machines and advertising kiosks; and
leases of premises in a retail shopping centre for non-retail purposes (such as an emergency care clinic) as long as no more than one-quarter of the total building area (or level in a multi-level building) is occupied by retail businesses.

New disclosure requirements for landlords and tenants

Furthermore, landlords and tenants must now abide by new disclosure rules. Specifically, landlords must now:

provide the tenant with a current disclosure statement;
within seven days after the tenant provides notice indicating their willingness to renew the lease;
unless the tenant also provides written notice waiving this requirement.

However, it is important to note that, the tenant is permitted to rescind their renewal notice within 14 days (two weeks) after he or she has received the disclosure statement; even if the new lease has already taken effect.

Landlords must also:

permit a tenant to enter into a lease within seven days;
after the landlord provides a disclosure statement and draft lease to the tenant;
as long as the tenant gives the landlord a signed written notice and a legal advice report beforehand.

Within this context, it is important to note that the latter does not apply if the tenant leases at least retail shops in Australia.

In accordance with the new rules, tenants (except franchisees) must now provide a lessee disclosure statement to the landlord no less than seven days (one week) before entering into the lease.

What about disclosure requirements for sublessors and franchisors?

Sublessors and franchisors must also abide by new disclosure requirements. In accordance with the amended Act, a sublessor must:

provide their sublessee with a copy of the landlord’s disclosure statement;
and written notification;
detailing any issues that could affect the provisions in the disclosure statement;
at least seven days prior to entering into a sublease.

Similar stipulations apply to franchisors who intend to licence the retail shop to franchisees who will conduct business under the franchisor’s business name or brand.

Finally, if the landlord’s disclosure statement provided when the sublessor (or franchisor) initially signed the lease (or began paying rent) is:

at least two months old;
the sublessor (or franchisor) must request an updated disclosure statement from the landlord within 28 days; and
is responsible for reasonable costs incurred by the landlord for its preparation.

Failure to provide a proper disclosure statement

If a landlord does not provide a disclosure statement as required by law or issues an improper disclosure statement, a tenant can legally terminate a new lease within six months of signing it (or starting to pay rent); or within six months of renewing a lease (unless he or she waives the disclosure requirement with the renewal notice). However, the amendments now detail the process in which the landlord objects to a tenant’s termination notice.

The amended law also stipulates that disclosure statement will only be defective if:

it contains a material omission;
or it includes false or misleading information that is relevant to a specific issue.

In other words, a disclosure statement will no longer be improper simply because insignificant information is left out, or because it does not follow a specific format.

Changes affecting compensation

Tenants should be aware of changes that can potentially affect their ability to seek compensation. As a tenant, you must give written notice of any claim for loss or damage under the lease as soon as realistically possible after sustaining any such loss or damage. This is especially important because failure to do so will now be considered in determining compensation.

Another point to bear in mind is under the amended Act, you will not be compensated for any loss or damage incurred when a landlord is responding to an emergency or complying with a legal duty. Furthermore, as a tenant, you cannot be compensated for any losses or damages incurred if the landlord prevents you from extending your business hours.

Under the revised law, a lease can now include stipulations restricting compensation for disturbances likely to occur during the first year of the agreement. However, landlords must give you (the tenant) written notice about any such event before you enter into the lease. Furthermore, it must include specific details of the potential type, timing, duration and effect of any such event. These stipulations should be incorporated into leases for premises that are subject to construction/renovations, or similar activity.

Other changes of note

Due to the scope of the changes, it is impossible to list and discuss them all in detail here. That being stated, we feel it is important to share just a few more changes of note. Specifically:

As a tenant, you may be responsible for a landlord’s legal fees if you provide written instructions for the preparation of a lease and don’t proceed with the tenancy.
In order to recover promotion and marketing costs from you (the tenant), your landlord must give you a detailed marketing plan that explains the proposed marketing budget for each accounting period.
If your landlord requires any refurbishments to the premises, during the term of a lease, he or she must provide specific details as to what must be done. Failure to do so may render the provisions unenforceable.

To learn more about the changes to The Retail Shop Leases Act 1994 (Qld), contact us to arrange a consultation with someone from our commercial conveyancing team today.