Review of the Retail Leases Act

On 21 February 2017, Deputy Premier and Minister for Small Business, John Barilaro announced that the Retail Leases Amendment (Review) Bill 2016 was passed which will result in significant changes to the Retail Leases Act 1994 from 1 July 2017.

The Bill amends the Act to:

  • increase transparency and certainty of the deal during the negotiation stage to ensure landlords must disclose all costs in some detail before the tenant is bound to the lease
  • introduce or improve fair protections including returning bank guarantees, registration of leases and returning executed copies of the lease
  • increase operational efficiency by simplifying the process of transferring a retail lease and clarifying existing provisions.

Amendments to the Retail Leases Act FactsheetAs a result of the changes, a Retail Code of Industry Practice will be developed and negotiated by industry to address information asymmetry and encourage the reporting of sales and occupancy costs.

Signatories to the code (namely the Australian Retailers Association, the National Retail Association, the Pharmacy Guild of Australia and the Shopping Centre Council of Australia) represent parties to retail leases inside large shopping centres in order to increase the sharing of information between landlords and tenants.

Enquiries about the code should be directed to the code's signatories named above.

Download Amendments to the Retail Leases Act (fact sheet)

Summary of changes Retail Leases Act review

The Retail Leases Act 1994 regulates the relationship between landlords and tenants of retail shops. The Retail Leases Amendment (Review) Bill 2016 has been passed by Parliament to amend the Act on limited issues.

Disclosure of outgoings

The Bill streamlines and clarifies the landlords’ disclosure obligations to increase certainty in the deal. Tenants will not be liable for financial obligations that have not been disclosed before the lease was entered into.

The only exemptions are new statutory charges that arise under legislation after the landlord’s disclosure statement has been provided. The tenant will be liable if a general obligation to pay statutory charges had been disclosed to them.

Mandatory registration

The Bill introduces a requirement for leases of more than three years to be registered. This amendment will increase certainty for tenants and protect their rights if ownership of the property is transferred.

Registration will also provide tenants with access to market information from the land titles register to improve decision making.

Executed copy of the lease

Landlords will be required to provide tenants with an executed copy of the lease so that tenants have evidence of their deal. The timeframe for providing the copy has been aligned with the timeframe for registration to enable both processes to be performed simultaneously, with exemptions for delays beyond the control of the landlord.

Removing the minimum five year term

The Bill repeals the minimum five year lease term to allow parties flexibility in determining the length of a retail lease. This amendment will reduce red tape for landlords and tenants.

Bank guarantees

Regulation for the return of bank guarantees will be introduced that prohibits landlords from holding on to bank guarantees for more than two months after a tenant has discharged all obligations under a lease.

Online bond scheme

The Bill makes changes to the operational provisions of the Retail Bond Scheme to transition it to a digital platform in 2017.

Specialist retail valuers

The Bill transfers the administrative process for appointing specialist retail valuers (who determine market rent) from the NSW Civil and Administrative Tribunal (NCAT) to the NSW Small Business Commissioner (SBC) and increases the number of valuer industry associations identified in the Act.

The amendment will enable criteria to be developed in consultation with industry for the training and experience requirements for specialist valuers.

Lease assignment

The Bill consolidates and streamlines the provisions that govern assignment of a lease to make the process easier and clearer. It includes additional limitations from the landlords’ obligation to consent to the assignment of a lease relating to the requirements of a public tender process.

Online sales

The Bill prohibits collection by landlords of a tenants’ turnover data from online sales where goods or services are not collected or provided from the shop or shopping centre where the transaction takes place while the customer is at the retail shop. The amendment ensures that any turnover data collected must be connected to the bricks and mortar shop.

Increased access to justice

The Bill increases the financial jurisdiction of NCAT from $400,000 to $750,000 and enables NCAT to rectify a lease or disclosure statement and make orders for compensation.

Clarification of existing provisions

The Bill removes the unnecessary exemption from the Act of premises located in an office tower and clarifies that only retail shops come under the operation of the Act. This will ensure that the application of the Act applies as originally intended, to retail leases, which are defined as any agreement under which a right of occupation of premises is granted for the predominant use as a retail shop. Retail shop businesses are specified in the Act (in Schedule 1) and also include businesses located in retail shopping centres.

Office towers located above shopping centres or shopping arcades, are clearly distinguished from shopping centres, and therefore, will not be captured by the operation of the Act.

The Bill clarifies that demolition clauses in leases can only be used for demolition or renovation proposed to a building, or part of a building, where the demolition or renovation cannot be carried out practicably without vacant possession.

Industry code of practice

The Act will not regulate of the collection and use of tenant’s turnover data from sales and occupancy costs. This has been addressed through a voluntary code of conduct, Retail Code of Industry Practice—The Reporting of Sales and Occupancy Costs, which has been negotiated by industry to address information asymmetry.

Signatories to the code (namely the Australian Retailers Association, the National Retail Association, the Pharmacy Guild of Australia and the Shopping Centre Council of Australia) represent parties to retail leases inside large shopping centres.

Frequently asked questions for small business owners

Why was the Retail Leases Act amended?

The retail industry is undergoing rapid change and the legislation needed to be refreshed and updated to remain relevant.

There were a number of systemic industry issues and market inefficiencies that needed to be addressed.

What was the consultation process?

From November 2013, the NSW Small Business Commissioner conducted a review of the Retail Leases Act 1994. The review included publication of a discussion paper which was the subject of detailed public consultation.

The consultation process involved:

  • holding industry and regional forums
  • setting up an Industry Working Group
  • publishing an online survey
  • calling for written submissions.

Through this consultation, the review heard from 282 people and organisations with about 100 people attending the forums and 182 provided written submissions.

What were the main issues raised?

Tenants consistently raised three key issues:

  • imbalance in access to information
  • imbalance in negotiation power at the end of lease
  • lack of clarity and efficiency in the legislation.

Landlords generally said there was enough regulation and no change was needed.

What will the amendments achieve?

The amendments are designed to achieve more transparency, certainty and fairness for all parties in retail in the state.

The key principles guiding the changes:

  • seek to better level the playing field between parties where there can be a significant inequity of power
  • seek to improve the sharing of information between the parties and regulation around how they are to deal with one another in relation to things like rent increases, demolition clauses, relocation, disturbance and assignment

What particular changes will assist small business owners?

There is greater clarity around some of the original intentions of the Act which have been eroded by the interpretation of the drafting language.

For example:

  • the requirement that landlords must disclose in detail the costs that a tenant is expected to pay under the lease is clearer
  • the assignment process has been simplified, which was previously hard to understand
  • landlords cannot pass on the cost of obtaining mortgagee consent to the lease
  • to help reduce the cost and time it takes to have a rent determination, the appointment of specialist valuers is being transferred to the NSW Small Business Commissioner.