Updates to the Retail Leases Act 2003 (Vic) – what does this mean for Landlords and Tenants?

On 23 September 2020 the long-awaited Retail Leases Amendment Bill 2019 (Vic) received royal assent, causing it to become law.

The Retail Leases Amendment Act 2020 (Vic) (the Amendment Act) has introduced seven key changes to the Retail Leases Act 2003 (Vic) and the Building Act 1993 (Vic).

This article will provide a brief summary of those changes and the impact this will have on landlords and tenants alike.

The key changes
1. Responsibility for Essential Safety Measures

Most notably, the Retail Leases Act 2003 (Vic) and the Building Act 1993 (Vic) have been amended to allow landlords to recover from tenants costs incurred in respect of Essential Safety Measures (ESM) compliance, provided the Tenant has agreed to be responsible for those costs.

Previously ESM liability was a highly contentious issue in the retail leasing community, particularly  since the 2015 VCAT advisory opinion which indicated that the cost of ESMs are not able to be passed on to tenants.

The Amendment Act changes this position and provides parties with certainty as to the allocation of these expenses moving forward (provided the parties have reached an agreement as to the allocation of these expenses).

It is important to note that this provision does not operate retrospectively.  This means that landlords will only be permitted to recover ESM costs incurred on and from 23 September 2020 (in an appropriately drafted lease agreement).

2. Return of security deposits 

Provided the tenant has satisfied all of their obligations under the lease agreement, landlords must return to the tenant any security deposit paid within 30 days of the lease coming to an end (rather than “as soon as reasonably practicable”).

3. Timelines for providing lease and disclosure statement 

Landlords must now provide a prospective tenant with a copy of the proposed lease agreement and accompanying disclosure statement at least 14 days before entering into the lease.  Prior to the Amendment Act landlords were required to provide these documents at least 7 days before entering into the lease.

If the landlord fails to provide these documents within the required timeframe, then the lease will not be taken to have commenced until the date that is 14 days after they have been given to the tenant.

Additionally, if the lease agreement is updated or amended at any stage after the provision of the initial document, the landlord must notify the tenant of these changes.  Failure to disclose any amendments that have been made to the lease agreement may result in the issuing of a penalty.

4. Additional disclosure obligations on renewal of lease 

Ordinarily landlords are required to provide tenants with a disclosure statement in the prescribed form when a retail lease is first entered into, and again on renewal of the lease, however the form of disclosure statement required on renewal contains limited information.  Under the Amendment Act, when a disclosure statement is issued on the renewal of a lease, that disclosure statement must set out any changes that may have been made to the previous disclosure statement that was given to the tenant, significantly increasing the landlord’s disclosure obligations.

5. New landlord disclosure obligations before option to renew expires 

Significant changes have been made to the information landlords must provide to tenants in relation to options for further terms.  If a retail lease includes an option to renew the lease for a further term, at least 3 months before the latest date for the tenant to exercise the option (i.e. 6 months before the expiry of the term) the landlord must give to the tenant a written notice that sets out:

(a) the latest date for the tenant to exercise the option;

(b) the rent payable on the commencement of the further term (should the tenant exercise the option);

(c) the option for an early rent review (discussed further below);

(d) the option for a cooling off period (discussed further below); and

(e) any changes to the most recently provided disclosure statement (other than any changes to the rent payable).

If the landlord fails to give the above notice by the required date, then the date for exercising the option is extended to 3 months after the date the landlord provides the written notice.  This change applies to leases currently in place, except where the tenant must exercise their option for the further term prior to 1 January 2021.

6. Early rent review

If a retail lease provides for a market review of rent, tenants may request that the parties undertake an early market rent review by issuing a written request to the landlord within 28 days after receiving the notice from the landlord regarding the option for the further term.  This allows tenants to make an informed decision about their exercise of the option to renew the lease, after the rent that will be payable on the commencement of the renewed term is determined.

7. Cooling off period 

If a tenant was eligible to request an early rent review but failed to do so, the Amendment Act provides the tenant with a 14 day “cooling-off” period to withdraw their exercise of the option to renew the lease.

This means the tenant can change their mind if they do not wish to exercise the option to renew the lease (where a lease provides for a market review) by giving the landlord written notice within the 14 days after exercising the option.

Conclusion

The introduction of the Amendment Act will undoubtedly have a significant effect on the retail leasing community moving forward.  We urge all parties to a retail lease to conduct a comprehensive review of your lease agreement to determine the impact that these changes will have on your obligations.