IMPORTANT CHANGES FOR LANDLORDS – DON’T GET CAUGHT OUT
In September 2020 the Victorian Government introduced important changes to the laws affecting retail leases through the Retail Leases Amendment Act 2020 (Vic). While the changes are far from revolutionary, it is essential that retail landlords firmly understand their updated obligations. The amendments serve the primary purpose of ensuring retail tenants are free to make more informed decisions when negotiating around retail leases. They also clarify recent uncertainty regarding the liability for repair and maintenance of essential safety measures. The amendments are focussed on building a fairer and easier retail tenancy environment. While the changes benefit all parties by ensuring transparency and certainty, it is landlords who must be most vigilant in ensuring they understand their obligations. There are important changes to disclosure requirements and time limits which, if breached, may lead to significant penalties being imposed.
Summary of Key Changes
Increased disclosure obligations and lead time
The minimum timeframe within which a landlord must provide a copy of the proposed lease and disclosure statement to a prospective tenant has been doubled. A landlord must now provide a prospective tenant with the relevant disclosure statement and lease a minimum of 14 days before the commencement date. In addition, the proposed lease must include the rent, tenant particulars and the term. This allows prospective tenants more time to consider the details of the proposed lease and the disclosure statement, and to seek professional advice where necessary.
Tenant must be notified of changes to proposed leases
Landlords must notify tenants of any changes made to a proposed copy of the lease. This can have serious ramifications for landlords during lease negotiations given that landlords who fail bring alterations to the attention of a prospective tenant are likely to be penalised.
Options to renew
Landlords are now required to provide tenants with more timely information regarding options to renew leases. The amendments ensure that tenants are provided with all relevant price and non-price terms within a reasonable time before they must decide whether to exercise an option to renew.
Previously, landlords were permitted to provide notice to the tenant 6 to 12 months prior to the last date that an option to renew must be exercised. Now, a landlord must provide such notice at least 3 months before the option to renew must be exercised. Specifically, the notice is required to contain:
- §the last date by which the option to renew may be exercised; and
- §the rent payable for the first 12-months of the new term; and
- §the availability of an early rent review process; and
- §a cooling-off period; and
- §any changes to the most recent disclosure statement provided to the tenant.
Importantly, if a landlord fails to provide this information, the option period is extended to the date which is 3-months after the notice is given. If the extension is after the expiry of the lease, the lease may be extended until 3-months after the notice is provided.
Introduction of early market rent review process for tenants
The amendments create a new early rent review process for tenants whose retail leases provide for a rent review to be made on the basis of the current market rent. Tenants will be provided a 28-day period to request an early rent review, and at least 14-days to consider once notified of the rent amount.
If the tenant decides not to exercise their option to renew the lease, the amendments provide for an extension in the lease if required to allow for 3-months from that point to allow both tenant and landlord to make alternative arrangements.
Introduction of cooling-off rights
In certain circumstances the amendments establish a 14-day cooling off period for tenants renewing retail premises leases. This may allow tenants who exercise an option to renew their lease to change their mind provided they have not engaged in an early rent review process.
Return of security deposit within 30 days
The amendments introduce a time limit requiring landlords to return security deposits, including bonds and bank guarantees, to the tenant within 30-days after the lease ends. Note that this reform does not impact on a landlord’s right to recover costs where a tenant has not fulfilled all of their obligations.
Landlords may recover costs of ‘essential safety measures’ from tenants by agreement
The amendments also provide clarity regarding the responsibility for costs for essential safety measures. Parties are free to make provision for who should bear which costs in their lease agreement. For example, landlords are able to pass on the cost of repairs and maintenance of essential safety measures where such is provided for in the lease. Further, parties to a lease are free to agree on which party will bear the cost of installation, repairs and maintenance of essential safety measures. This means that an occupier will be barred from recovering expenses from the building owner relating to the installation, repair or maintenance of essential safety measures where that occupier has agreed to bear such expenses under a retail premises lease.