NB: The Retail Leases Amendment Act 2019 (Vic) received Royal Assent on Tuesday 22 September 2020. The amendments to the Retail Leases Act 2003 (Vic) are effective from 22 September 2020 and the amendments regarding essential safety measures are effective from 23 September 2020.
The Retail Leases Amendment Bill 2019 (Vic) (Bill) is one step closer to coming into effect and has passed through the Lower House of the Victorian Parliament. The Bill must pass through the Upper House before becoming law so in anticipation of this we have outlined the below key items in the Bill.
Essential Safety Measures
At present, landlords cannot recover the costs associated with their complying with essential safety measures or incorporate these costs into the calculation of outgoings. The parties can agree that the tenant meet some of the essential safety measures requirements. Under the Bill, landlords can recover costs associated with essential safety measures (including smoke detectors, fire extinguishers, sprinklers, etc.) from the tenant as outgoings.
Provision of Disclosure Statement
Landlords will be required to provide Disclosure Statements to tenants at least 14 days prior to entering into the lease (rather than the current 7 days).
Return of security deposits or bank guarantees
At present the return of bank guarantees is determined in accordance with the terms of the lease. Under the Bill, the landlord will be required to return the security deposit / bank guarantee to the tenant within 30 days of the end of the lease. This places the onus on the landlord to promptly, after termination of the lease, determine if it is required to draw on the security deposit or whether there is a dispute between the parties.
Notice and disclosure obligations in relation to further terms
Currently landlords must notify a tenant at least 6 – 12 months before the last date available to the tenant to exercise the option of that latest available date to the tenant to exercise its option. Under the Bill, the landlord must (at least 3 months before the last date that the tenant must exercise the option to renew) give a notice that sets out:
- the date by which the option to renew must be exercised;
- the rent payable for the first 12 months of the further term;
- the availability for an early rent review (see below);
- the availability of a cooling off period (see below); and
- any changes to the most recent Disclosure Statement provided to the tenant (other than changes to rent).
Further, if the landlord fails to give this notice within the prescribed time, the tenant is afforded three months after the landlord gives the notice to exercise its option to renew.
Market rent reviews for further terms
Under the Bill, if there is a market rent review at the commencement of the further term, the tenant may (within 28 days of the landlord’s above renewal notice) request that the market rent review process be undertaken early. The tenant must exercise the option to renew in time, however if the market rent is determined less than 14 days before the last date available to exercise the option, then the tenant is granted 14 days from the date that the market rent being determined to exercise the option to renew.
If the tenant requests the early rent review and the rent outlined in the landlord’s above renewal notice is less than the rent determined under the early market rent review, then the rent determined under the early market rent review will apply.
If the tenant does not request an early rent review and the rent outlined in the landlord’s above renewal notice is less than the rent determined in the usual market rent review process, then the rent outlined in the landlord’s renewal notice will prevail. This section of the Bill incentivises landlords to nominate a higher rent in their renewal notice.
The Bill also affords a tenant that exercises its option to renew and does not request an early rent review (as outlined above), the right to give the landlord notice that it no longer wishes to exercise its option to renew the lease. The cooling off period is the fourteen-day period from the date that the tenant exercises its option to renew. The effect of this section of the Bill is such that the term of the lease is extended by 14 days, the lease is not renewed and the tenant is not able to exercise the option to renew.
The Bill will pose some interesting practical hurdles for landlords and agents, especially in relation to the disclosure obligations prior to further terms and early rent reviews. The Bill may also have the unintended effect of landlords being left with vacant tenancies if an early market review is not timely and once determined, the tenant decides not to proceed with the option to renew.
Nonetheless, landlords will be pleased to know that they will be able to recover their costs associated with essential safety measures from its tenants.
If you are a landlord, agent or tenant and wish to discuss any of the above or strategies available to the parties, please contact our Specialist Leasing Team to discuss.