Major Changes To Retailing Leasing In Victoria

In a time of change, despite having to deal with the implications of Covid-19 on current retailing leasing arrangements, landlords and tenants need to be aware of recent amendments to the Victorian retail leasing framework which are now in operation.

The Retail Leases Amendment Act 2020 (Vic) (Amendment Act) was passed by the Victorian Parliament on 15 September 2020, taking effect on 1 October 2020 (except for the recovery costs of essential safety measures, as detailed below). The Amendment Act makes some key changes to Building Act 1993 (Vic) (Building Act) and the Retail Leases Act 2003 (Vic) (RLA). 

Whilst the amendments provide greater protection for tenants, there are now additional obligations on landlords. To ensure compliance with the amendments, landlords will need to become familiar with the same and act accordingly when it comes to leasing practices and documentation.  

Some of the key changes introduced by the Amendment Act include:

Landlords can recover costs of essential safety measures from tenants

Under the RLA, landlords can now recover from tenants (in the form of outgoings (if permitted by the lease)) the costs of repairing and maintaining essential safety measures (ESM) (including any ESM cost in carrying out an installation relating to fit out of the retail premises for which the tenant has agreed to pay). This does not extend to any ESM costs incurred prior to 23 September 2020, or to any non-retail leases.

Disclosure statements

A landlord must now provide a tenant with a disclosure statement and a copy of the proposed lease at least 14 days (previously seven days) before entering into the lease. 

Despite the dates specified in the lease, if the landlord provides the documents less than 14 days before entering into the lease, the commencement date will be delayed until 14 days have passed. Further, if the lease provided to the tenant contains any changes and the landlord has not notified the tenant of the changes, the landlord may be subject to a fine of $41,305 (if it is a corporation) or $8,261 (if it is an individual).

Security deposits to be returned within 30 days

Prior to the amendments to the RLA, landlord’s were required to return security deposits “as soon as practicable”. Landlords are now required to return a tenant’s security deposit within 30 days of the lease ending, provided the tenant has performed all of their obligations under the lease. 

Landlord’s obligations on renewal

If a lease contains an option to renew, the landlord is now required to provide additional information to the tenant prior to the tenant exercising an option for a further term.

At least three months before the last date that an option to renew the lease may be exercised, the landlord must provide the following information by way of written notice to tenants (Renewal Notice):

  • the date by which the option to renew may be exercised;
  • 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.

If the landlord fails to give the tenant notice within the required timeframe, 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.

Early rent review

If the lease contains an option to renew, the tenant can now request an early rent review. The tenant may request an early rent review by giving the landlord written notice of the request within 28 days after the landlord has provided a Renewal Notice to the tenant.

The tenant must notify the landlord in writing as to whether the tenant exercises the option to renew the lease on or before the last date that the option to renew the lease may be exercised. 

If a valuer is appointed to determine the current market rent, but the determination is not provided at least 14 days before the last date that the option to renew may be exercised: 

  • the option to renew is extended to 14 days after the date the tenant is notified of the rent determination; and
  • if the renewal date extends beyond the date that the term of the lease has ended, the lease is extended on the same terms and conditions to that date, unless the landlord and tenant otherwise agree.

Cooling off period

If a tenant has exercised an option to renew a lease under the RLA and has not requested an early rent review, the tenant may give the landlord a written notice in the cooling off period (14 days after the option is exercised) that the tenant no longer wishes to renew the lease (Cooling Off Notice). 

If the tenant provides a valid Cooling Off Notice:

  • the term of the lease will be extended by 14 days;
  • the lease is not, and is taken not to have been, renewed; and
  • the tenant is not able to exercise an option to renew the lease.

As a result of the above amendments, landlords should review their lease documentation and internal process to ensure compliance. Should you require any assistance with respect to any of these amendments, please do not hesitate to contact our Property Team on 03 8508 7800

 

*This article was written in collaboration with Kathryn Bastounas.