Western Australia Retail Leases

Many Australian state governments have expanded their concept of consumer protection to include small business consumers who were bargaining on a far from level playing field, where owners of large shopping centres had all the advantages and all the power. The state governments seek to provide this protection by making sure that prospective tenants have sufficient information to make sound business decisions when entering into or renewing a retail lease.

Recent amendments to the Commercial Tenancy (Retail Shops) Agreement Act 1985 in WA clearly offer further protection to tenants, the Government regarding them as the less powerful party in most retail leasing transactions.  As a result, the amendments require greater responsibility and pro-active behaviour from the Landlords.

 The Commercial Tenancy (Retail Shops) Agreement Act 1985 regulates retail and other commercial tenancies. The principal focus is on the need for transparency of information and fairness in the contract by:

• requiring a disclosure statement by the Owner (lessor ) to the tenant (lessee);
• establishing a consistent and fair process for rent reviews;
• giving the tenant an entitlement to a minimum lease period of up to 5 years;
• regulating the distribution of specified landlord expenses to tenants;
• provide access to alternative lower cost mediation and dispute resolution mechanisms offered by the State Administrative Tribunal.

It is important for landlords and tenants of retail premises and other businesses covered by the Act to establish the impact of the Act on their lease agreement.

Commercial Tenancy (Retail Shops) Agreement Act covers parties involved in retail/commercial leases for shop premises which are:

• up to but no greater than1000 square metres in area;
• tenanted by private businesses but not publicly listed companies and their subsidiaries;
• tenanted by non-retail businesses where located in a shopping centre (of 5 or more retail shops or specified businesses);
• the business carried out by the lessee is a specified business such as a dry cleaning, hairdressing, beauty therapy, shoe repair, video store or some petrol station agreements.

Disclosure statements:

 The Law in Western Australia , is very clear:

A landlord in a retail lease must not, in connection with the lease, engage in conduct that that is misleading or deceptive to a tenant or guarantor. A party who suffers damage by reason of misleading or deceptive conduct of another party may make a claim for compensation.

If a landlord fails to give sufficient information it is guilty of Unconscionable Conduct.

At the disclosure stage, Landlords and their agents will now be required to provide a copy of a retail tenancy guide to any prospective tenant as soon as negotiations are entered into.  See s6A of the Act.

Tough penalties apply if you don’t provide this guide or if the statement is inaccurate. In particular, Commercial Tenancy (Retail Shops) Agreement Act 1985 renders void, lease provisions which require any tenant’s payment for contribution to fit out, that has not been disclosed in a disclosure statement. In most states the law entitles the tenant, if he/she gives you the proper notice, to withhold payment of rent until the disclosure requirements are complied with (but any rent paid is non refundable).

The only way a tenant cannot end the lease in case of inadequate disclosure is where:

• the landlord has acted honestly and reasonably and ought reasonably to be excused for the failure concerned,
• the tenant is in substantially as good a position as the tenant would have been if the failure had not occurred.

 

Commercial Tenancy Forms and Act

The property owner or their agent is required to provide forms specified by Regulations under Commercial Tenancy (Retail Shops) Agreement Act to prospective tenants to enable a proper assessment of a lease proposal.

Contact the State Law Publishers:

10, William Street ,

Perth ,

Phone: (08) 9321 7688;

website: www.slp.wa.gov.au

for information on authorised copies of the Act, the Regulations and the Forms see ‘ The tenant guide’ (form 6)

 

 If the tenant requires it additions may need to be included in the statement such as;  

• After hours access
• Air conditioning
• Air control
• Cool rooms/freezers
• Dedicated parking bays
• Delivery access
• Drainage
• External equipment
• Fire protection
• Floor loading
• Hot/cold water
• Power/lighting
• Security
• Shop fit-out
• Telephone/facsimile/radio
• Tenancy cleaning
• Wall loading
• Wet/dry waste
• Other:

If a lease is subject to the Act, any dispute arising between the tenant and the landlord may be referred to the State Administrative Tribunal. The fee payable is currently $29.00.

If a lease is entered into by way of the ‘renewal of a lease’ on the exercise of an option, a landlord should make a fresh disclosure statement.

For new leases you have to provide the tenant with a copy of the unsigned agreement (with the names and addresses of the parties included), a disclosure statement, and a government prepared Information Brochure available from the Department of Consumer and Employment Protection

You do not need an information leaflet or a disclosure statement in WA for RENEWALS.

The tenant doesn’t have to pay for fit-out contributions if the liability to pay them is not disclosed in the disclosure statement. However, if you alert the tenant to the fact that there will be a requirement for payment of an outgoing, and, specify that it is to be calculated by a third party in a reasonable fashion then that is sufficient (unlike stricter requirements in other states).

Landlords may be kept on their toes throughout the duration of the lease with new powerful remedies for tenants to withhold payments when information is not provided on time. This can particularly occur in the case of providing estimates or statements of outgoings.  Strata levies are also to be included in the list of outgoings. 

The Commercial Tenancy (Retail Shops) Agreements Amendment Act1998 introduces to retail/commercial leases covered by the Act, more than thirty changes which:

• improve disclosure and information for prospective tenants particularly in the form of a new Tenant guide;
• support fairness and equity in rent review provisions including the prohibition of ratchet clauses (which took no account of current market rent levels);
• introduce a rationale to limit tenant contributions to valid landlord expenses;
• prohibit management fees being recovered from tenants by managing agents or owners managing their own properties;
• clarify obligations in relation to contributions to sinking, marketing and promotion funds;
• enhance protection by adopting nationally recognised audit standards; and
• extend the jurisdiction and powers of the Registrar and Commercial Tribunal in support of these initiatives.

In all states, the lessor must provide the lessee with a copy of the Tenant Guide promptly (although there is no specific requirement for this in WA, it goers to the question of unconscionable conduct if you don’t).

You cannot demand that a tenant pay you key money.

In 2007, the Retail Shops and Fair Trading Legislation Amendment Act 2005 (RSFT Act) introduced unconscionable conduct provisions to the Commercial Tenancy Act. The RSFT Act does not include provisions that allow appeal from a Commercial Tribunal ruling.

5 year Minimum term

Section 13 of Commercial Tenancy (Retail Shops) Agreement Act 1985 provides tenants entering a new retail shop for the first time the right to at least five years tenancy to help establish and develop the business, with an option for a further five years.

Section 13(b) provides provisions regarding how renewal notices should be administered when the term of the lease expires. Landlords are not required, under the notice of renewal, to specify rent until 3 months before the expiry of the lease. A tenant may negotiate a shorter lease term with the landlord.

Rent Increases

Section 11(2)(b) of the Act provides that unless specific provision is made in the retail shop lease for the time at which review may be initiated, either party can initiate the market rent review process at any stage. At the end of each lease period the rent should be reviewed. In Western Australia , two rental increases a year are acceptable.

Outgoings

The lessor has to provide a written estimate, before entering into the lease and 1 month before the start of each accounting period, of the outgoings to which the tenant is liable to contribute under the lease, (including rates, taxes and shares of things like car parking contributions). Otherwise the tenant does not have to pay them. If you want the tenant to pay for a share of your expenses (other than usual outgoings – such as marketing expenses) you have to provide an audited account.

You can’t ask your tenant for capital costs or interest on your loans. In Western Australia , you also can’t ask the tenant to pay your land tax or your legal or other expenses relating to drawing up of the lease, the disclosure statement or other documents required by the Act.

You can ask for reimbursement in respect of any assignment of the lease or a sublease, including investigating anyone’s suitability, in all states.

Legal expenses

Section 12 of the Act relates to tenants’ contribution to landlord’s regular operating expenses and does not include reference to who pays the cost of preparing and negotiating a lease. WA retail leases generally include provisions making tenants pay the landlord’s legal costs in preparing and negotiating the lease.

Bond

You may ask for a bond, or security deposit. If you get it, in Western Australia you should put it in an interest bearing account and credit the interest to the tenant, but, there is no specific provision for this (however it may go against you if there is a dispute and you haven’t). You must return a security deposit to the tenant as soon as practicable after the lease ends where the tenant has performed all obligations under the lease.

The tenant has the option to provide a bank guarantee instead of a security deposit. Any security deposit must be held in an interest bearing account, the interest being added to and held with the principal.

Breaches

You are required to give the tenant a notice of breach and at least 14 days to rectify the breach prior to the landlord entering the premises.

Renewal – options

In all states, if an option for renewal is not exercised at the right time it will be lost.

The tenant can exercise an option for renewal even if there has been a breach of the lease – generally the lease will set out the provisions for exercise of the option.

 

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