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Retail & Commercial Leases Variations & Regulations - OCT10
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CHANGES TO THE RETAIL & COMMERCIAL LEASES ACT AND REGULATIONS – ARE YOU COMPLIANT?
The Retail & Commercial Leases Act 1995 (SA) [the Act] places many obligations on landlords of Retail Shop Leases. The Act, among other things:
• Requires landlords to provide a disclosure statement before a lease is entered into,
• Sets a minimum return for standard Retail Shop Leases,
• Prevents a landlord from recovering land tax as an outgoing from tenants,
• Defines grounds on which consent to the assignment of a lease must be given.
There are about to be changes made in the way the Act will be administered. As of 4 April 2011 the Retail & Commercial Leases Variation Regulations 2010 (SA) [the Variation Regulations] will come into effect.
Before the proposed changes the Act only applied to a Retail Shop Leases where the rent payable did not exceed $250,000.00 per annum. The Variation Regulations will prescribe a new rent threshold of $400,000.00 per annum. This will apply to all Retail Shop Leases as from the 4th April 2011.
One issue landlords will need to consider is whether a lease that was entered into before 4 April 2011 and provided for an annual rent of more than $250,000.00 will now be captured by the Variation Regulations. There is an ongoing issue as to whether a lease that was not originally subject to the Act, but because of an increase in the rent threshold, now may fit within the Act.
Many commentators have suggested that once the rent threshold has been exceeded then the Act no longer applies. Commentators have argued that this is because Section 4(2)(a) of the Act does not specify that the threshold is to apply at the commencement of the lease.
This Act does not apply to a Retail Shop Lease if the rent payable under the lease exceeds $250,000.00 per annum or, if a greater amount is prescribed by regulation, that other amount1
This proposition is supported by the Victorian case of Towercom Pty Ltd v Strathfield Group Limited (2000) VSC 370. In this case the Court decided that the Retail Leases Act 2003 (Vic) (the equivalent of the Act) may cease to apply if circumstances were to change during the term of a lease. In that case the legislation ceased to apply because the lessee changed from a private to a public company and therefore was not within the scope of the Victorian legislation. It has been argued that the case suggests that if circumstances change during the term of a lease, such as the rent threshold being exceeded, then the Act no longer applies. While the case is not binding in South Australia, it is considered persuasive.
On the other hand, one of the purposes of the Act when it was enacted, was to protect small tenants in their dealings with landlords. Consistent with this purpose, is to ensure that the Act still applies to a lease, to protect small tenants, notwithstanding that the rent threshold under a lease may be exceeded during the term of the Lease.
While the authors note the arguments put forward by many commentators in relation to the interpretation of Section 4(2)(a) of the Act and the case of Towercom Pty Ltd v Strathfield Group Limited, we recommend that a cautious approach is taken in relation to the application of the Act. That is, the authors recommend that all landlords continue to comply with the obligations under the Act for any lease which may exceed the rent threshold during the term of the lease. If in doubt, the authors recommend that landlords seek legal advice as to whether or not the Act applies.
The Variation Regulations do not clarify whether the rent threshold is to be inclusive or exclusive of GST. Again, various commentators have put forward arguments as to whether the rent threshold under the Act is inclusive of exclusive of GST. Again the authors recommend that landlords take a cautious approach in relation to this, and therefore assume that the rent threshold is exclusive of GST.
Retail & Commercial Leases Regulations 2010
The Retail & Commercial Leases Regulations 2010 (SA) [the 2010 Regulations] have replaced the pre‑existing Retail & Commercial Leases Regulations 1995 (SA) [the 1995 Regulations]
The 2010 Regulations have altered the prescribed documents under the Act. The 1995 Regulations previously set out various forms which were required under the Act. For example, there were prescribed forms for the following:
1. Warranty of fitness for purpose;
2. Certified exclusionary clause;
3. Notice of request for determination of current market rent;
4. Notice of abandoned goods.
The 2010 Regulations remove these prescribed forms.
The required forms for the vendor’s disclosure statement and the assignor’s disclosure statement remain under the 2010 Regulations (Forms 1 & 2 of Schedule 1 of the 2010 Regulations). These forms have however been altered under the 2010 Regulations.
From 1 December 2010 the disclosure statement form must be served in accordance with the 2010 Regulations.
The assignor’s disclosure statement must be served from 1 September 2010 in accordance with the 2010 Regulations.
While it is not clear from the 2010 Regulations, we suggest that the assignor’s disclosure statement is served when assigning a lease that was entered into prior to the 2010 Regulations coming into effect.
The 2010 Regulations now prescribe that the vendor’s disclosure statement must be personally signed by the landlord.
We advise all landlords and agents who act on behalf of landlords to ensure that the landlord’s disclosure statements and assignor’s disclosure statements are updated in accordance with the 2010 Regulations.
1 $400,000 from 4 April 2011 in accordance with the Variation Regulations
