Retail Leasing Changes in SA


This alert applies to SA subscribers that are involved in leasing of certain retail shops and will likely amend the SA – Retail Leases and the SA – Retail Leases (Landlord) topics.

Retail and Commercial Leases (Miscellaneous) Amendment Bill 2019 (SA)

Please be advised that the Retail and Commercial Leases (Miscellaneous) Amendment Bill 2019 (SA) (the Bill) passed Parliament on 12 December 2019 and received Royal Assent on 19 December 2019.

Amendments to the application of the Retail and Commercial Leases Act 1995 (SA)

The Bill amends the application of the Retail and Commercial Leases Act 1995 (SA) (the Act). The Act will continue to apply to retail shop leases if the premises to which the lease applies consist of a retail shop or a retail shop together with an adjacent dwelling. At present, section 4(2)(a) excludes the application of the Act if the rent payable under the lease exceeds $250,000 per annum or, if a greater amount is prescribed by regulation, that other amount. This means that while parties are able to enter into a retail shop lease for rent amounts above $250,000 per annum, such agreements are not covered by the Act. The Bill amends the Act by increasing this amount and inserting a “prescribed threshold”, setting the amount of rent payable per annum, under which the lease may not exceed during any period, for the Act to apply.

Prescribed threshold, in relation to rent payable under a retail shop lease, means:

  • the amount of $400,000 per annum exclusive of GST; or
  • if a greater amount is prescribed by the regulations for the purposes of this definition and the Act – the amount so prescribed.

It should be noted that the Act will not apply even if the amount of rent payable under the lease (or renewed lease as the case requires) is decreased (for example, as a result of a review of rent), such that the rent payable under the lease no longer exceeds the prescribed threshold (and the Act would otherwise apply to the lease).

Additional disclosure obligations on lessors

The Bill amends section 11 of the Act, adding a further obligation on retail shop lessors (or persons acting on behalf of the lessor) to provide prospective new lessees with a copy of the information brochure (if any) about retail shop leases published by the Commissioner.

Importantly, the Bill also amends the penalty on the existing obligation in section 11(1) of the Act that requires lessors to provide a copy of the lease to a prospective lessee as soon as entering negotiations. The penalty is significantly increased from $500 to $8,000.

Service obligations for lessor disclosure statement

The Bill amends section 12 of the Act, adding service requirements for lessors serving a disclosure statement to a lessee. Section 12(4) of the Act will now require service on a lessee (or lessee’s agent) using one of the following methods:

  • personal service;
  • leaving it for the lessee at the relevant residence or company address with someone over the age of 16 years;
  • post;
  • fax;
  • email;
  • a manner prescribed by the regulations.

The Bill also inserts a significant $8,000 penalty on the existing obligation to provide the lessee with a disclosure statement before a retail shop lease is entered under section 12(1) of the Act.

Amendments allowing for larger security bond payment requests

At present, section 19(1)(b) of the Act provides that a person must not require the payment of an amount by way of security under a security bond if the total amount paid by way of security exceeds 4 week’s rent under the lease. The Bill changes this threshold, now preventing a person from requiring a security payment if the total amount exceeds 3 month’s rent (exclusive of GST) under the lease.

It should be noted, for the purposes of the above obligation, that the maximum amount of the security bond was previously calculated by reference to the rent payable during the first 6 months of the lease. The Bill will amend this calculation by referring to the 1st year of the lease instead.

New return of bank guarantees obligation

The Bill adds obligations on lessors who receive a bank guarantee for a lease. Under newly inserted section 20AA, a lessor must return the original bank guarantee to the lessee within 2 months after the lessee completes performance of the obligations under the lease for which the bank guarantee is provided, and failure to do so carries a maximum penalty of $8,000.

It should be noted that a lessor is liable to pay to a lessee compensation for:

  • any loss or damage suffered by the lessee as a result of any failure by the lessor to return a bank guarantee in compliance with this section, or an order of the court; and
  • reasonable costs incurred by the lessee in connection with the cancellation of a bank guarantee because the lessor was unable to return the original bank guarantee in compliance with this section, or an order of the court.

Bank guarantee means a guarantee from an ADI for the performance of the lessee’s obligations under the lease.

Minor penalty and timing changes

The Bill amends various penalties and timings for relevant obligations throughout the Act that subscribers should be aware of, including:

  • Section 15 – prohibited premiums – penalty increase from $10,000 to $15,000;
  • Section 19 – security bond – penalty increase from $1,000 to $1,500;
  • Section 20 – repayment of security – timing to dispute application for payment increased from 7 to 14 days;
  • Section 20L – premium for renewal of extension prohibited – penalty increase from $10,000 to $15,000;
  • Section 20M – unlawful threats – penalty increase from $10,000 to $15,000;
  • Section 24(5) – providing information on turnover rent – penalty increase from $1,000 to $1,500;
  • Section 44 – premium on assignment prohibited – penalty increase from $10,000 to $15,000;
  • Section 51 – confidentiality of turnover information – penalty increase from $10,000 to $15,000;
  • Section 75 – vexatious acts – penalty increase from $5,000 to $8,000;
  • Section 77(4) – contravening conditions of exemptions – penalty increase from $500 to $800.

Please click here to access the full Bill.

Contact

For further information please contact the Law Compliance team:

Phone: 1300 862 667

Email: info@lawcompliance.com.au