Proposed retail lease reforms for South Australia: Key points for lessors and lessees

After a lengthy review process, the South Australian government has proposed long overdue changes to its retail leasing legislation. What do these mean for lessors and lessees? And what new obligations should parties be aware of?

What’s happened?

The Retail and Commercial Leases (Miscellaneous) Amendment Bill 2017 (SA) (Amending Legislation) proposes a number of changes to the Retail and Commercial Leases Act 1995 (SA) (Act). The Amending Legislation has passed the second reading stage in the House of Assembly but has yet to pass the Upper House. So what potential changes should lessors and lessees be preparing themselves for?

How will the Act change if the Amending Legislation is passed?

Thresholds and Application of the Act

The prescribed threshold for rent payable under a retail shop lease has been clarified as $400,000 per annum exclusive of GST.

The Amending Legislation also clarifies that other amounts, for example security bonds, are exclusive of GST.

The Amending Legislation clarifies that the Act can cease or commence applying at any point in time depending on rental increases or changes in the prescribed threshold of rent or companies becoming or ceasing to be public listed companies.

The Valuer-General will also be required to review the amount of the prescribed threshold two years after commencement of the Amending Legislation and every 5 years thereafter.

Public companies and subsidiaries

The terms ‘public company’ and ‘subsidiary’ in the Act will have the same meanings as defined in the Corporations Act 2001 (Cth).

The Act won’t apply to companies or subsidiaries of companies listed on a stock exchange outside of Australia.

Documents provided to prospective lessee

A lessor will be required to provide prospective lessees with a copy of any information brochures published by the Small Business Commissioner.

Disclosure statements

There will be no requirement for a lessor to provide a lessee with a disclosure statement for the renewal of a lease. The requirements and method of serving a disclosure statement are also clarified.

Provision of lease documentation

A lessor must:

• provide the lessee with a copy of the fully executed lease; and

• if a lease is to be registered, lodge the lease for registration,

within one month of receiving the lease signed by the lessee.

Repayment of security

Timeframes for lodging a written notice of dispute with the Commissioner under section 20 of the Act are increased from seven days to 14.

Return of bank guarantees

A lessor must return a bank guarantee to a lessee within two months of the lessee fulfilling its obligations under a lease. A lessee may claim compensation from a lessor for any loss or damage suffered as a result of the failure to return a bank guarantee.

Minimum five year term

The Amending Legislation removes the implication that a new lease with a minimum five year term is granted when a lessee holds over for longer than six months after the expiry of the earlier lease.

Certified exclusionary clauses

The Small Business Commissioner, in addition to lawyers, is granted the power to sign a certificate in relation to certified exclusionary clauses. The Commissioner may require payment of a prescribed fee for providing such a certificate.

Penalties

There has been an increase in the amounts payable on a number of penalties for offences under the Act.

What do the proposed amendments mean for lessors and lessees?

The Amending Legislation provides for many changes that are beneficial to both lessors and lessees. In particular the Amending Legislation makes it clear that leases can go ‘in and out’ of the Act.

Lessees will have better protection in ensuring they are provided with all of the necessary information prior to entering into a new lease.

A Lessor who holds a bank guarantee will be required to return it within two months of the lessee fulfilling all of their obligations under the lease. Further, lessors will need to be efficient in signing and registering leases which may create administrative problems for lessors with large portfolios in South Australia.

If you have any queries, contact our authors who will be happy to discuss these with you.