Additional landlord obligations and tenants' rights under the Retail Leases Amendment Act 2020 (Vic)

The Retail Leases Amendment Act 2020 (Vic) (Act 26 of 2020) (Amending Act) has passed both houses of Parliament and received royal assent.

The Amending Act introduces amendments to the Retail Leases Act 2003 (Vic) (Retail Act) and Building Act 1993 (Vic) (and its Regulations) (Building Act) which come into operation on 1 October 2020, largely imposing additional obligations on a retail landlord and providing retail tenants with additional rights and protections.

We summarise the key amendments and changes made by the Amending Act, including the following:

• return of security deposits
• essential safety measures (ESM)
• disclosure statements for new leases
• requirement to highlight changes to previous disclosure statements
• exercise of options and early market rent review, and
• introduction of a cooling off period pursuant to an exercise of option.

Return of security deposits

Pursuant to the Retail Act, if a tenant performs all of its obligations under the retail lease, a landlord must return a security deposit as soon as practicable after the end of a retail lease.

The Amending Act requires that subject to a tenant’s compliance, a security deposit must be returned within 30 days from the end of a retail lease.

Essential safety measures (ESM)

Pursuant to the Amending Act, parties in retail leases are now able to agree in a retail lease whether a landlord or a tenant must undertake installation, repairs and maintenance of essential safety measures as defined in the Building Regulations 2018 (Vic).

Where a retail lease provides that a landlord must undertake repairs and maintenance work in relation to ESM, costs of such repairs may be recoverable as outgoings.

This clarifies the position in relation to maintenance and repair of ESM in Victoria and will, to an extent, override the advisory opinion handed down by the Victorian Civil and Administrative Tribunal (VCAT) relating to the matter in 2015, which has to date been considered persuasive to a Victorian court or tribunal.

A key point to note here is that despite being able to require a tenant to carry out works related to ESM, a landlord as the owner of a building is still primarily liable for any non-compliance under the Building Act and the Building Regulations 2018 (Vic).

Disclosure statements for new leases

Pursuant to the Retail Act, a landlord must provide a disclosure statement to a tenant at least seven days prior to entering into a retail lease.

This Amending Act extends this period to 14 days prior to entering into a retail lease.

If a landlord fails to comply, the term of the lease commences 14 days after the disclosure statement and proposed lease are given to the tenant.

A landlord of a retail lease must also highlight any changes between the landlord standard lease provided with a disclosure statement and the proposed lease given to a tenant. Failure to comply will result in penalties.

Requirement to highlight changes to previous disclosure statements

The Retail Act requires a landlord to provide a tenant who agrees to renew a retail lease a prescribed disclosure statement relating to that renewal.

This Amending Act states that when providing the above disclosure statement, a landlord must set out any changes to the previous disclosure statement given by the landlord to the tenant.

Exercise of options and early market rent review

In the Retail Act, a landlord must notify a tenant in writing of the last date a tenant may exercise its option under a retail lease (Last Date) between twelve and six months prior to that Last Date.

This Amending Act proposes to replace the above requirement with a new requirement that a landlord of a retail lease must give notice to a tenant at least three months prior to the Last Date, stipulating:

The Last Date

• the rent payable during the first year of the option term
• the availability of an early rent review under the Retail Act
• the availability of a cooling off period under the Retail Act, and
• any changes to the most recent disclosure statement provided to the tenant (other than in relation to rent).

Failure to comply will result in the Last Date being extended for three months after the notice is eventually provided.

In addition, if a retail lease provides for a market rent review, a tenant may request the landlord conduct an early market rent review within 28 days after a landlord serves the above notice.

Introduction of a cooling off period pursuant to an exercise of option

Pursuant to the Amending Act, if a tenant exercises its option to renew a retail lease but has not requested an early market review (as summarised above), a tenant may, within 14 days of exercising its option, give notice to the landlord that it does not wish to proceed with the option.

If a tenant notifies a landlord that it does not wish to proceed with the option, the retail lease will not be renewed, the tenant will lose its right to an option, and the term of the retail lease will extend by 14 days.

This amendment is unique to Victoria as it has not been implemented in other states.

Key considerations for retail landlords and tenants

Retail landlords should review their standard lease covenants and update their processes and procedures in relation to provisions of disclosure statements and notices.

Parties who wish to purchase retail properties should review all previous disclosure statements provided by proprietors in the conduct of their due diligence.

Retail tenants should consider and understand its cooling off rights in relation to an exercise of an option to renew its leases, and its rights to request for early market rent reviews.

For more information

If you would like more information or have questions about the Amending Act and its impact on you as a landlord, tenant or incoming landlord, please contact us.